Next-gens may fear economic uncertainty, but that’s not stopping them from making high ticket purchases. HighSnobiety reports that, by 2026, millennials and Gen Z will make up more than 60 percent of luxury spend.
Chinese next-gens are leading the way. The average Chinese luxury consumer is a mere 28 years old –– that’s ten years younger than the global average. McKinsey reports that China’s luxury market will double by 2025, comprising a staggering 65 percent of global growth between 2018 and 2025.
[callout]The average Chinese luxury consumer is a mere 28 years old –– that’s ten years younger than the global average – and China’s luxury market will double by 2025, comprising a staggering 65 percent of global growth.[/callout]
But here’s the biggie: 70 percent of Chinese next gens will avoid taxation and higher prices by doing their luxury shopping overseas. That means that luxury brands around the world need to learn how to attract consumers outside of their local customer base. Here are some insights and strategies to make it happen.
Scarcity Drives Desire
The perceived scarcity of certain luxury items is paramount to their appeal. During quarantine, factory shutdowns have created a genuine scarcity in luxury production. This exclusivity goes beyond the historical tradition of manufacturers intentionally putting a cap on how much they produce of a certain item. This brings us to in important question: Will luxury and limited run products made during this time become collector’s items, much like coins printed with minting errors?
Perhaps. The fashion industry is notoriously nostalgic. Quarantine-specific trends, such as the house dress or nap dress, will likely become hot commodities when Generation Alpha grows into adulthood and hit its spending stride. Lockdown-induced scarcity can create a competitive advantage for luxury retailers who are transparent about the status of their limited-run products, and the potentiality of these products becoming a commodity.
Raf Simons did a great job of igniting millennial and Gen Z nostalgia in his collaboration with MATCHESFASHION. Simons reproduced his bestselling apparel over the past 25 years for a limited line. The collaboration is strategic, of-the-moment, and brings with it an urgency that defines today’s limited luxury market.
Brand Loyalty Starts Now
Luxury brands may be tempted to make the argument that young consumers simply can’t afford their products. While that may be true in some areas of the U.S. and Canada, Chinese luxury consumers have proven that this isn’t the case worldwide. We’re living in a highly connected world. Much like the purchasing behavior of next-gens sets the tone for cross-generational buying patterns, so will Chinese luxury consumer preferences come to define the global shopping mindset.
McKinsey reports that 31 percent of fashion executives expect the luxury market to improve in the new year. While some luxury purchasing behavior still varies by location, the exodus to online shopping channels will accelerate the shift towards a unified, global luxury market. In this new domain, the attributes that drive next-gen purchasing in China will also help luxury retailers appeal to the broader global market.
It’s all about relationship building. Today’s college student who is infrequently gifted a high-end handbag by their relatives is tomorrow’s luxury market driver. High-end brands need to pique next-gen’s interest and start building a dialogue now, well before the young consumers are ever in a position to make a luxury purchase on their own.
Building High Contact Relationships
Alright, so we’ve talked about the fact that Chinese next-gens are driving the global luxury market. Now what are the nebulous factors that influence Chinese next-gen luxury spend? The luxury shopping experience has always been differentiated by the level of contact that customers receive. Communications are more intimate, often including dialogue with the product designer, individual sales associates, and/or brand advocates. But the channels luxury brands use to maintain relationships has evolved significantly.
At this point, most retailers are aware of brand advocates and their potential to tap into a consumer base. This has to be done very subtly to reach next-gens. Hiring a contestant from The Bachelor to hawk a high-end handbag in a sponsored post on their Facebook feed won’t cut it. Next-gen’s need to be inspired to purchase, and innovation is what drives that inspiration. They’re looking for something novel. Innovative artwork and strategic design ignite interest; a respected, relevant brand advocate builds trust.
And online channels drive sales growth. AI-powered recommendations are an essential part of this, but the advertising is less direct and more dependent upon relationship building. Take this hypothetical case study of the modern luxury consumer’s path-to-purchase:
A brand advocate comes up first in a customer’s feed through a friend’s hashtag. The customer researches and follows the influencer, develops an admiration for their aesthetic, and begins to interface with them. Once the foundation for the relationship is established, the customer is driven to follow a brand the influencer recommends in a sponsored story. The brand announces a limited run collaboration with one of the customer’s favorite artists, and the customer then saves up their income from their part-time job to make that first purchase.
What will it take to make this burgeoning relationship more than a one-off success? Continued dialogue with the brand advocate. Consumer driven production is another factor, such as:
- Collaborations with artists that the young customer can’t ignore.
- Design that is so innovative that the young consumer buys in just to be on the forefront of fashion technology.
- Design contests that pique the consumer’s passion and creativity.
The End of the “Let Them Come to You” Mindset
In the next four years, next-gens will comprise the bulk of luxury market consumers. And status no longer incentivizes luxury purchasing for the next generation. Luxury retailers can’t sit around looking fancy and waiting for their target customer to find them. Personalization and creativity have the potential to fill in the gaps left by next gens’ ambivalence towards status symbols.
Luxury clothing needs to be functional and actively compelling. This is highly achievable for brands that do their research. Gucci achieved this delicate balance through a heady mix of recent collaborations; linking up with utilitarian outdoor retailer, North Face; and creating a capsule collection that has major Eastern appeal with quirky Manga sensation, Doraemon.
Nobody said that getting next-gens to spend ample amounts of their hard-earned cash during a global pandemic would be easy, but it is possible. The market continues to grow and evolve… an enticing opportunity for brands that are willing to build a high touchpoint, lifelong customer relationship.