It’s no surprise, but 2020 wasn’t kind to the luxury industry. After months of declining in sales due to the pandemic, luxury brands are seeing a resurgence.
A recent report from Bain & Company shows that after contracting due to the pandemic, the market grew by about 14% in 2021 to 1.28 billion. While this total is still about 10% below 2019 levels, some categories have grown enough to exceed 2019 performance.
Stabilization of the global economy, for one, but more interestingly, the growth of e-commerce and digital marketing, and brands with luxury offerings are taking notice. From luxury retailers to automotive giants, brands are reinvesting in their luxury strategies.
Marriott and GM Financial are a few of these brands shifting their approach to marketing their luxury offerings. It’s a shift that could mean millions in revenue—if done right.
While the luxury market is booming, not all luxury is created equal. Nearly all segments of the market have seen growth in 2021 (luxury cruises are still lagging), but Bain reports only the following four have grown enough to exceed 2019 levels:
It makes sense that these segments have done well as consumers have weathered varying levels of quarantines and safer-at-home guidelines. Many shoppers reallocated discretionary spending from services to goods—especially those that make life at home more pleasant.
Personal luxury goods have done particularly well. As Bain explains, “The market for personal luxury goods—the ‘core of the core’ of luxury segments and the focus of this analysis—has come roaring back, experiencing a V-shaped recovery in 2021.” Sales are set to beat their pre-Covid record with a 1% year-over-year rise.
Categories like luxury hospitality, on the other hand, haven’t fared as well. Bain reports that the category made a comeback from the second quarter of 2021, but overall spending stayed well below pre-pandemic levels.
After all, we’re still facing restrictions on international travel.
The global health crisis has shaken up luxury distribution channels, as well. Bain reports that brands continued to increase control over their distribution in 2021, with a rise of directly operated channels. In particular, online luxury sales are booming compared to in-store shopping.
“Online and monobrand stores were the key channels for 2021’s recovery,” Bain’s report explains. “After a 50% jump from 2019 to 2020, online continued to power on, growing by 27% from 2020 to 2021.”
Websites devoted to a single brand now make up about 40% of this online segment (up from 30% in 2019).
While a big chunk of luxury shopping now happens online, the digital world offers more than simply a space for transactions to take place.
Spearheaded by Balenciaga, a number of luxury brands are now creating digital products to be used in the so-called metaverse. For example, Balenciaga has collaborated with Fortnite to sell virtual clothing and accessories for players’ avatars.
And other luxury brands are experimenting with gaming collaborations, too, like LVMH Moet Hennessy Louis Vuitton SE, Burberry Group Plc, and Ralph Lauren Corp.
Bloomberg reports that, “According to Morgan Stanley, luxury groups could generate sales of about 10 billion euros ($11.3 billion) from gaming by 2030, although this could be as high as 25 billion euros in its most optimistic scenario.”
How can luxury brands snag their own pie of the growth pie as the market continues to expand? Bain states that the Covid crisis marked a turning point for luxury as we knew it, and that “The expanding universe of luxury customers expects more from brands than before.”
Luxury brands must understand these expectations—and the macro and individual level—then go above and beyond when delivering on them.
One of the biggest consumer expectations is 1:You personalization. This level of personalization requires both the data to truly understand your customers—and the technology to turn that insight into highly-personalized action.
Marc Sheinkin, Senior Director of Member and Guest Communications at Marriott, explains that personalization might translate to less communication.
“[In 2022], we’re creating ways for our luxury brands to stand out and customizing the email marketing experience for guests we think are likely to prefer luxury. This starts with data that helps us identify luxury preferers, which is more challenging when travel (particularly international travel) is limited.
“And it means not only sending luxury guests more personalized, bespoke communications, but also not sending them certain kinds of emails that could clutter and devalue the experience.”
But personalization doesn’t stop at outbound communications. Brand-controlled, online distribution is on the rise, and consumers expect personalized content everywhere products are sold—from the website to display advertising and even to the metaverse.
This requires reevaluating all touchpoints throughout the customer’s journey and path to purchase, including new channels and technology they are engaging with, as well as how they are interacting with your brand.
Will Stacy, Chief Marketing and Digital Officer at GM Financial, says that luxury customers expect every interaction to be tight and on point, which they’re addressing with a new luxury concierge:
“We’re launching Cadillac Financial, a luxury, branded, concierge experience for customers. [Luxury customers] are just a different kind of customer that has different expectations. Often it comes to Escalade—it’s a very expensive product, and the Escalade customer expects a different level of service. The concept we’ve used is the idea of ‘it’s handled’. A celebrity or a person of power, they have a person who handles things.”
How can you bring it all together? We can take a hint from Bain’s conclusion:
“New keywords and phrases—such as metaverse, personalization at scale, and tech stack—will come to the fore as the industry grows and evolves.”
Luxury brands that want to follow the market’s impressive growth trajectory must shore up their ability to identify, understand, and engage their luxury shoppers, overdelivering at each and every touchpoint.