The luxury industry may have lost a bit of its luster lately:  in 2014, Prada’s third-quarter profits sunk 44%; LVMH sales growth has slowed down; and analysts downgraded their recommendations for some listed companies.
There are several reasons for this. First, weak economic performance in parts of Europe and Asia is deflating consumer demand in those areas. Second, societal shifts, including a crackdown on corruption gift giving in China and last year’s protests in Hong Kong, are stealing some of the industry’s cache. At the same time, a lack of truly innovative products has failed to energize consumers.

But there is a big and most important reason:  the luxury consumer base has changed. It’s not your grandmother’s luxury market today, which brings tremendous growth opportunity for the luxury brands that can evolve with the changing face of affluence and market to these new customers based on their individual needs.

The Six Senses and Sensibilities of the New Luxury Consumer

To say that the luxury consumer landscape is becoming more complex is an understatement. In fact, where there was once one typical luxury consumer, there are now many different types, and they all want unique things from luxury brands.

1. Income. The luxury consumer of the past was the ultra-rich. And while the extremely wealthy still represent an important segment of luxury consumers, they are no longer the only audience in town. In fact, upwardly mobile middle class consumers make up a significant and rapidly growing slice of the market.   According to A.T. Kearney’s luxury consumer survey, on average, the annual household income for about 15% of US luxury brand consumers is less than $60K.

While these aspirational consumers may not be able to afford a $10,000 bag, they can afford a $300 clutch. Thus, it makes financial sense for luxury brands to court these less wealthy but more ubiquitous consumers with one set of products, while also offering more exclusive, limited edition products for the super-rich.

2. Age. Luxury used to be dominated by relatively older consumers.  While they are still part of the picture, younger consumers, especially Millennials, are making up an increasingly large share of the luxury market. Some brands, such as Fendi, Tory Burch, and John Varvatos see  about 50% of their consumers under the age of 35, according to the survey.

These younger consumers have strong social justice values, are extremely Internet and social media savvy, and as a result, have different expectations for their relationships with brands. They expect a seamless experience between online and offline, they expect to have an ongoing dialogue with the brands and they truly care about what values a brand stands for.

3. Gender. The luxury consumer of yesteryear was more than likely female, but now, rapid global growth in male apparel and grooming categories is helping to balance the scales. In fact, in the US, men’s apparel is growing faster than women’s apparel. Globally, men’s grooming is booming.

4. Geography. In the past, luxury shoppers were mostly confined to the US and Western Europe. Now, the luxury market is truly global, with some of the biggest pockets of growth coming from emerging markets especially Asia. This has created new distribution demands for luxury brands. Thus, brands have followed the money and expanded their global presence.  For example, Louis Vuitton has stores in countries as far ranging as Mongolia and Nepal.

5. Trendiness.   As one Gucci buyer put it, “Consumers crave fashion discovery, and the thrill of finding the next ‘it’ brand.”   Luxury used to be synonymous with the classics, but is now often positioned as modern and trendy while still offering classic looks. A good example of this is Burberry, which has made a concerted effort to push into a more fashion-forward space in recent years, but still relies on its classic trench for a good chunk of its revenue.

6. Value. Luxury goods used to be valued because of their emphasis on craftsmanship and the intrinsic value of the brand. Today, intrinsic value continues to play an important role, especially to Millennials. But there is a segment of consumers (mostly in emerging markets), that prefer flash and fashionable glitz over classic craftsmanship.

The Complexity Conundrum

Faced with all this complexity, luxury brands have to make a choice: either pick one segment of the market and serve it exceptionally well; or adjust the strategy and business model to serve multiple segments of the market at the same time.

We expect many companies will go the second route because it offers the clearest path to continued growth. But this route also creates additional complexity—different products, different price points, different geographies. To effectively serve multiple new consumer segments without losing scale, brands will have to consider all aspects of their operating models and ways of working.

All this complexity may seem like a challenge, but it’s also an incredible opportunity. Never before have luxury brands had the opportunity to reinvent and extend their brands farther. Those luxury brands that differentiate themselves by targeting and engaging all their key consumers will help usher in the next golden age of personalized, customized luxury.