Luxury fashion retail has always been associated with swanky physical touchpoints for enabling a higher level of consumer intimacy, thereby generating business and earning consumer loyalties. While many emerging names in this sector have already started to rewrite the rules by adopting digital media as mainstream, however, the power of physical presence wasn’t challenged until these pandemic years.
While replicating luxury experiences and product aesthetics in a digital environment has been a barrier in the past, adopting a full-scale digital transformation roadmap is nothing but essential to sustain for staying relevant for the future.
“What core shifts are inevitable, observed and will leave an impact on the next growth wave for luxury fashion brands?”
We see four key areas that witnessed a change and will continue to become a driving force for the brands to recalibrate their business levers.
Evolving New Consumers of Luxury
Millennials and Gen Z will account for approx. 55% of the global personal luxury goods market by 2025, as this could go up to 80% in 2030. These “Consumers of Tomorrow” will command how brands reshape their interactions while going ahead. A few of the main profile attributes of these consumers are, they…
…value experiences and instagrammable moments are the symbols of new indulgence.
…associate with brands that are purposeful, responsible and ethical. Based on a Nielsen study, 73% of Millennials say that they are willing to spend more on a product if it comes from a sustainable or socially conscious brand.
…do not relate luxury with just high price premiums, rather it’s an end-to-end experience which drives the new definition of exclusivity.
…highly technology savvy and, given how digitally immersed these consumers are, it will become difficult to establish connections with them just using traditional approaches associated with physical retailing.
Changes in the Business Environment
Several changes have been observed in the business environment led by the Covid-19 pandemic
The Decline in Domestic and International Travel – Given, approx. 20-30% of the industry revenues are generated by consumers making purchases outside their home countries. With travel restrictions in place, tourism and cross border travels have come to a halt, this has posed a significant business risk that has to be tackled.
Physical Retail and Associated Risk – Social Distancing and hygiene concerns leading to reservations in product trials/interactions have brought the fashion retailing from brick-and-mortar store at risk, as this psychological barrier could prevail even with lifting of lockdown.
Omnichannel Presence – Increasing presence in the e-commerce marketplace by luxury brands. For instance, Myntra; a fashion e-commerce marketplace in India saw the addition of Armani, L’Occitane and The North Face in its portfolio.
Social Commerce as the new bet, to get sales from the digital medium without compromising on experiences. Snapchat is betting high on social commerce along with Augmented reality to build sales platforms.
Changing Market Opportunities
Growing Pre-Owned Luxury Market – The second-hand luxury market is growing four times faster than the primary market. The adoption rates of pre-owned luxury products have risen with the global second-hand luxury market standing at €26 billion in 2019 and many re-seller platforms have emerged for luxury products. Vestiaire Collective, a Paris based resale platform raised funding in April 2020. If one was to go by inventory position, The RealReal’s inventory from brands has grown by 30% over six weeks starting with lockdown declaration, with maximum goods coming from Hermes, Gucci, Chanel, Louis Vuitton and Prada. GenZ is all set to become a bigger consumer set for this market by embracing thrifting culture.
Increased Role of Online Channels in Driving Sales
About 80% of luxury transactions were influenced by online channels, whereas 20-25% of purchases were done digitally in 2019. Farfetch and Net-A-Porter are an example that, digital retail in luxury is working.
“How can brands adapt and respond to these changes and prepare themselves for a long haul?”
In the present scenario, either the brands will emerge stronger than ever or, will become a distressed entity. It largely depends on the actions that are taken today, keeping the longer horizon in the perspective.
Connected Consumer and Superior Experience
Personalization & Customization: It is a bigger bet for driving exclusivity and better brand association. During the launch of Caesar sneakers, Ermenegildo Zegna let its consumers customize their shoe design and add characters onto the heels. The magnitude of personalization and co-creation will keep on increasing and will set them apart from their competitors.
Ethical and Responsible Fashion, a key trend today, will transition as a must-be element for brands to exist for greater acceptance. The high increase of adoption of trends is noted, for instance, Save the weavers by Sabyasachi, vegan ways of leather making, cruelty-free cosmetics, usage of organic yarns and textiles and subscription with certification bodies that govern sustainable standards and ethical labor practices.
Consumer tie-up: Through digitally-enabled product launches, events, fashion shows etc. In April 2020, Glow Recipe launched its first digital sampling programme, Paris Fashion week went into an all-digital format last July.
Nurturing Micro-Communities: To get closer to the end consumer with the help of private groups. Brands such as Coach, Tarte Cosmetics are a few to adopt and gain from this. Based on a study, nearly two-thirds of 1,000 people, under 30, polled by a youth-focused creative agency, said they prefer to talk in the private message rather than open forums and feeds.
Product Portfolio Expansion and Innovation
Strategic Adjacencies: With short gestation cycles, there is a chance more can be explored fully. With many brands making use of their manufacturing facilities for masks and other essentials, brands could explore categories like hand creams, designer masks, hand-sanitizers, soaps and additional categories for short to mid-term.
Affordable Luxury: It can be used as an entry-level portfolio for both, Gen Z and Millennials. A low-ticket size luxury product would essentially mean onboarding the consumers early in their lifecycle and eventually navigating them to relevant categories at a later stage along with upselling opportunities.
Collaboration and Partnerships
Exploring non-compete collaborations will provide an edge. One such association could be a Co-Branding Partnership, BMW and Louis Vuitton is an example for the same.
Brands should assess collaborating with digital platforms of luxury resale or similar exclusive tie-ups for containing the customer and providing avenues to buy and re-sell based on the developing needs and aspirations.
The RealReal engages with consigners as well, with their reward mechanisms. According to a report, roughly one-third of the true luxury consumers sold their items on such platforms as their primary motivation is to empty their closet and secondary is to finance the upgraded luxury fashion purchase.
Digital and Technology at the Centre
LVMH foray into the blockchain to provide full proof of the product authenticity and traceability to the used goods market is a leading example to catch up for other brands.
Post-pandemic consumers will exhibit reservations in trials or touch and feel of fashions products and, hence risking sales growth. A contactless, experience led sales procedures will be an enabler for overall purchase decision making.
Experiments with Digital Experience Labs for consumers to explore and interact with the brand, Robotics for contactless pick-up booths could help build stronger connect and trust in the Indian context.
Several brands announced their post COVID-19 digital calendar of shows in 2020-21. Louis Vuitton and Farfetch experimented with digital designs through gamification. Last year Gucci experimented with letting its consumer try on sneakers through AR is a trend starter.
Data Science with AI and ML-based Analytics
The bunch of elements going into the digital ecosystem can function with very high technological interventions. Significant efforts beyond the established e-commerce rule book will have to be thoroughly thought and applied. The potentiality and outreach of live streaming can be enormous, especially in the case of cataloguing, new launches etc.
Revamping of data collection strategy to target and retarget potential consumers will be a key. Knowing consumer through the multiple age brackets and targeting relevant categories through those age brackets will be important to grow business.
Deploying AI and ML for going closer to consumer purchase behaviors with targeted selling opportunities will give results in predictive selling.
Concluding Remarks – Faster infusion of all-round digital strategy at the center and knowing the future consumers is a must for luxury fashion brands. Driving newer technology adoption, leveraging data science and harnessing the potential from the used luxury goods market will be crucial levers for brand relevancy and growth in times ahead.
We at Aventren Consulting specialize in digital commerce advisory, business strategy and managed services for luxury and premium fashion and lifestyle products. Should you wish to have conversation with us, block a meeting by clicking here or drop an email to [email protected] we will be glad to connect. Also, share your thoughts or perspectives on the read above.
About Aventren
Aventren is an India-based management consulting firm providing services for business consulting, digital commerce services, and managed services. With deep advisory knowledge and execution capabilities, we bring the right mix of skills and energy to support your business ambitions. Aventren is founded and led by ex-EY Professionals.
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