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The Top Five Trends for Luxury Retail in 2023

Sia Partners examines retail trends worth monitoring for luxury retailers to thrive in a rapidly changing world.

Luxury retail is traditionally thought to be among the most insulated of retail segments against market disruptions. Fueled by a quick digital pivot and latent demand, luxury retail rebounded from Covid-19 quicker than other retail segments. More recently, the performance of luxury retail indicates that it is weathering global inflation far better than most thanks to its pocket aces of exclusivity and affluent customer spending. It’s a winning hand, the segment has played before in the face of similar economic uncertainty.

However, new challenges are on the horizon that cannot be solved so easily. Changing customer expectations, social and environmental concerns, and geopolitical events fundamentally shift how luxury retailers must operate.  

To thrive in this new paradigm, luxury brands must rewrite the story of who they are and how they interact with their consumers. Here are the top luxury retail trends worth monitoring for any brand wanting to make an impact in 2023 and beyond.

Millennials and Gen-Z will soon become the dominant buying force in luxury retail, but for very different reasons than their parents

The long-heralded emergence of Millennials and Gen-Z into the luxury retail space is here. After years of slowly increasing segment growth, this cohort is already making up an estimated 50% of luxury sales and is poised to grow past 70% by 2025. While this retail trend has come as no surprise to any competent brand, the reasons fueling this growth are markedly different from those of previous generations.

  • They are value-based shoppers. For these generations, their values are at the core of their identity, and they expect brands to earn their loyalty and investment by sharing those beliefs. Luxury brands therefore must visibly commit to the same social, environmental, and political causes as their consumers and engage their customers in those terms.
  • They crave authenticity and innovation from the brands they shop for. Millennials and Gen-Z have continued to prove they are willing to invest in luxury goods that deliver long-term quality and do so in a way that is faithful to the brand’s heritage, while also fostering innovation and new technologies. 78% of luxury consumers cite a brand’s commitment to innovation as a purchase driver.
  • They are hybrid shoppers and expect to engage with brands through multiple channels simultaneously. 70% of their luxury purchases are influenced by online interactions, but 75% of transactions still occur in-store. To meet these dual desires, luxury retailers must embrace a unified experience across channels, delivering on expectations both digitally and physically.

In-store talent and experience will become more important than ever before

Maintaining a luxury experience means investing in luxury talent at every layer of the customer journey. It also means empowering that talent with the right tools and training to deliver an immersive customer experience. A book of business and clienteling skills is simply no longer enough to deliver the differentiating experience customers expect.

As previously noted, tomorrow’s luxury consumer is a hybrid shopper, and they expect value-based engagement from the brands they shop for. As the human face of a brand, store associates must:

  • Eliminate the gap between digital and physical. Associates must deliver a seamless experience with a high level of service using both physical and digital tools.
  • Pivot quickly to changing expectations and meet customers with a value-driven experience.
  • Embody brand values and authenticity, not snobbish exclusivity.

 Of course, the onus for this shift is not solely on the associates. Brands must make the investment to attract and retain top talent, ensure a high-quality workplace, and provide the tools and training for their associates to be successful. For many luxury brands this may be a sharp pivot, but successfully doing so will enhance both their associate and customer experience, positioning the brand for competitiveness in the next decade and beyond.

 

Sustainability, purpose, and ESG visibility are now expectations

Today’s consumers expect luxury brands to be purpose-driven and use their product offerings to advance their organizational values. 79% say they are more loyal to purpose-driven brands, and top of mind are environmental, social, and governance issues, with 84% of consumers indicating ESG is a priority in their purchase habits.

Despite this clear imperative, it’s estimated that less than a third of consumer brands have publicly defined sustainability/ESG goals and metrics. This represents a massive action gap that luxury brands must close. While many brands are developing sustainability roadmaps, concrete and urgent action is required to secure a competitive advantage in this segment.

To close the gap brands must:

  • Identify ESG metrics and goals and create internal performance accountability around them. For many brands, this knowledge may not be internal, so partnering with outside experts or NGOs may be a required investment.
  • Publish both goals and values. Customers are savvy against greenwashing efforts and lip service and will not offer trust without visibility.
  • Engage consumers by sharing progress updates and new initiatives around ESG priorities. Brands should do everything possible to control the narrative around their ESG campaigns and drive connection with their consumers through the issues they care about.

Luxury will dive into the resale market

Once considered diminishing to brand image, this new retail trend has led to luxury retailers fully embracing the resale concept pioneered by brands such as Patagonia. Fueled by consumer interest in sustainable alternatives to fast fashion, this market is expected to grow from $36 billion to almost $60 billion in the next three years and many luxury retailers are taking notice. Kering’s recent investment in Vestiaire Collective, as well as Neiman Marcus Group’s in Fashionphile, are prime examples of major luxury players entering the resale market. Still, other brands are taking the resale process in-house, offering it as an additional service to their customers.

The impact on carbon emissions is significant and measurable: emissions per sale are decreased by an estimated 40-80% depending on the product and can positively contribute to a brand’s sustainability goals. In addition, controlling the process (either internally or through data sharing arrangements with third-party vendors) allows luxury brands the ability to closely monitor products for authenticity, helping to maintain a timeless brand image with consumers.

Finally, this service meets luxury consumers where it matters most by increasing access to the timeless quality and authenticity they value in their brands. Vintage offerings lower entry barriers for new consumers, allow for customer-driven identity building, and provide another way for consumers to live their values- 65% of customers shop resale as an alternative to the wastefulness of fast fashion.

China may not be the sure bet it once was

In 2020 communist China accounted for approximately 20% of the world’s personal luxury goods market and was expected to surpass North America and Europe as the world’s top market by 2025. A decisive rebound was predicted following the easing of Covid restrictions, much like what was seen in the US and Europe, and luxury brands had prepared for it on their balance sheets and with their inventory buys. The rebound, however, has yet to materialize.

Most noteworthy for foreign luxury brands is that President Xi Jinping’s “Common Prosperity Doctrine” has the potential to fundamentally alter Chinese consumer habits and further damper a potential luxury recovery. Unveiled in late 2021 and aimed at lessening income inequality in China, Common Prosperity introduced several aims which deemphasize visual representations of wealth, discourage Chinese citizens to participate in the global consumer economy, and incentivize domestic consumption of Chinese-manufactured goods. Many of these policies are being enforced through aggressive crackdowns and coercive action from the Chinese government. Consequently, both social pressures and direct government action threaten the continued growth of foreign luxury brands on Chinese soil.

Lingering Covid-19 lockdowns in major Chinese markets have also continued to squeeze consumers’ ability and desire to shop. Combine these two factors with continued global supply chain woes, and the fabled luxury rebound in China seems questionable. At best, it will certainly not be as dramatic as once thought. Divestment in China is, of course, not advisable, but luxury’s wisest move should be to temper expectations and adopt a wait-and-see approach towards additional investment in the Chinese consumer segment.

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