The luxury goods market is undergoing a major transformation as the customer base shifts, requiring luxury brands to adapt to changing demographics. The dominance of baby boomers and Gen X consumers is waning, and younger generations are emerging as the primary clientele. To thrive in this new landscape, luxury labels need to alter their approach to listening to, communicating with, and engaging customers. This was emphasized in a recent report by Bain & Company in collaboration with Altagamma, an Italian luxury brand association.

According to the report, Gen Z consumers (born between 1996 and 2015) are projected to increase their market share from 8% in 2019 to 20% in 2025. Similarly, Gen Y consumers (born between 1981 and 1995) are expected to see their market share rise from 36% to 50% during the same period. By 2025, individuals under the age of 40 will represent 70% of luxury consumers, and this younger demographic will drive 180% of the market’s growth.

Federica Levato, one of the report’s authors, describes a “radical rejuvenation” occurring in the luxury market. In 2021, half of luxury revenue came from customers who had never purchased luxury goods prior to 2019. These new customers come from diverse backgrounds and are strongly influenced by cultural attitudes, posing a challenge for luxury brands to meet their needs.

Digital tools have played a pivotal role in this shift, and luxury brands must adapt to the evolving business model. The traditional role of a shop assistant has transformed into that of a consultant who guides customers through multiple touchpoints with the brand. This necessitates brands to provide tailored content and maintain a consistent brand image across these interactions.

Remo Ruffini, CEO of Moncler, emphasizes that brands must adopt a different approach to thrive in this changing landscape. Brands can no longer rely solely on a single sales channel or seasonal sales. Instead, they must create captivating experiences both online and in-store and actively reach out to consumers to offer these experiences.

The luxury market itself has also undergone a transformation, transitioning from a classic pyramid structure to an oval-shaped market with fluid boundaries. Traditional market segments and product categories no longer hold the same significance. Consumers now gravitate towards brands that inspire them and offer a wide range of motivations beyond product categories and prices. Emotional engagement drives consumer choices, and customers are equally willing to purchase apparel, accessories, or footwear. “Hero products” like iconic handbags or statement sneakers have been incredibly successful, generating billions of euros in sales.

Sustainability is also a critical factor in consumer decision-making. More individuals are choosing brands perceived as environmentally friendly. The €33 billion resale market is a clear indicator of this trend.

Furthermore, the brand logo remains significant, not as a symbol of status or wealth, but as a means for consumers to express their values and associations. Wearing a brand logo is a proud display of the brand’s message and creative direction, fostering a strong connection between consumers and brands.

According to Claudia D’Arpizio, a partner at Bain & Company, these trends will transform the luxury industry into a broader cultural sector. Luxury brands are evolving into multimedia companies and platforms that offer a wide range of content. They are becoming cultural players with the ability to promote values within society and assume a quasi-political role.

However, embracing this new role comes with its challenges. The luxury market has historically grown alongside the distribution of wealth as the middle and affluent classes gained purchasing power. Yet, with wealth becoming more polarized, luxury brands must address the issue of social inequality. They must navigate the tension between luxury purchases as symbols of social success and the growing emphasis on social ethics and culture.

In conclusion, the luxury goods market is undergoing a significant demographic shift, with younger generations becoming the dominant customers. Luxury brands must adapt their approach to listening, communication, and engagement. They must embrace their new role as cultural players and prioritize sustainability. However, they must also navigate the challenges posed by social inequality. By understanding and addressing these changes, luxury brands can successfully navigate the radical rejuvenation of their clientele.

Useful Links:
1. How Luxury Brands Can Master Customer Engagement to Drive Growth
2. Storytelling for Generation Luxury