Luxury brands are projected to have a strong growth trajectory in 2019, and with 97% of the profits in the fashion industry are earned by luxury brands, it’s a trajectory worth a closer look.
But there’s a catch - growth can equate to the potential loss of scarcity and desirability. Especially as some fashion houses call stalemate and curate a “masstige” assortment to appease consumers’ entitlement to the finer things.
How will luxury brands maintain a positive trajectory while cultivating an exclusive aesthetic? It starts with observing key themes arising in retail as a whole; a sharing economy, resale, and digital.
THE END OF OWNERSHIP
Lifestyle for rent, click here. By 2025, Millenials will represent 40 percent of the global luxury market, but they aren’t interested in long-term commitments. The desire for short-term access and convenience over ownership has led to the emergence of ridesharing apps, co-working spaces, and space-sharing services like Airbnb. “This is not a generation that is hung up about ownership, or for whom a mortgage-free home and security in retirement are at the top of their wish list. The Millennials are far more motivated by life experiences and personal enrichment,” says Marco Abele, CEO of Swiss luxury co-ownership startup TEND.
Traditionally, Millennials and Gen Z’s barrier to entry has been steep price points, so luxury experiences begin with lower ticket purchases like accessories. Now, however, with brands like Rent the Runway, Bag Borrow or Steal, and Flont, young consumers can afford a wider selection of a brand’s products, solidifying and extending the brand experience and exposure. This makes sense for shoppers, but forms a paradox of sorts in the luxury retail model.
Most luxury brands have chosen to opt out of the rental concept to preserve prestige branding. But as the global online clothing rental market reaches an estimated $1.85 billion by 2023 (formerly $1 billion in 2017), premium companies can leverage sharing opportunities by creating circular partnerships. Rent the Runway offers its inventory and logistics platform to luxury brands, cutting out the middleman. Shoppers can rent directly from their favorite brands, and luxury retailers can monetize their inventory while accessing a 9 million member RTR customer base and all their behaviors and preferences.
A DIGITAL PLAYGROUND
Digital disruption has resulted in the dismantling of classic brick-and-mortar brands, store strategies with decreased square footage, and the rise of experiential shopping. Luxury may have been late to embrace digital and omni-channel initiatives in order to preserve an air of scarcity, but arguably to its own detriment, with online sales expected to triple by 2025 reaching USD $91 billion. It’s predicted that nearly one-fifth of all personal luxury sales will take place online.
The spike in digital revenues can be attributed to online retailers like Net-a-Porter, Farfetch, Moda Operandi, and SSENSE. These platforms offer an elevated digital experience, an area where standalone luxury flagships lack. Curated personalized experiences have been embedded in luxury retail since its conception, and experience will remain vital in resonating with consumers in the digital space.
In 2018, we saw growth from traditional luxury retailers who established digital touchpoints to connect shoppers and enhance the in-store experience. Nordstrom introduced its first menswear store using digital initiatives to get customers shopping, including 24-hour in-store pickup. And Chanel has launched an augmented retail experience in partnership with Farfetch. The initiative will integrate Chanel’s flagship with digital capabilities to create an immersive and personalized shopping experience.
As the online playground expands, luxury brands must catch up to tech-savvy consumers and use digital retail to re-create the customer journey.
THE IMPACT OF RESALE CULTURE
Luxury resale is a contentious industry-slash-topic. It’s protected under the First Sale Doctrine, which states that once a trademark owner releases its products to the market, it cannot prevent the subsequent resale of those products by their purchasers. From one perspective, reselling luxury goods is a form of cannibalism to existing fashion houses. From another point-of-view, resale websites like The Real Real are digital allies to luxury brands.
In a 2018 mid-year report released by The Real Real, the luxury consignment retailer emphasized the growth of luxury resale and its unique access to consumer data. By search and sales data, Gucci ranked number one amongst consignment shoppers, increasing its resale value by 12 percent. The insights the company collects gives them the ability to track luxury brands by age and popularity over time. “The industry and the public are looking to this market to determine consumer behavior and to reveal the brands and trends luxury consumers are after right now. With over 8 million items sold, we have unique access to data that speaks to these trends,” said Rati Levesque, Chief Merchant at The Real Real.
Like the rental model, resale serves as a point of entry for the Millennial and Gen Z shopper who can’t afford full price luxury. According to a 2018 report released by Thredup, the resale market will be worth $41 billion by 2022, with apparel taking 49 percent of that pie.
Sustainability initiatives are also drivers for consumers to shop with luxury resellers, especially Gen Z brands like Stella McCartney who have partnered with The Real Real to promote circular fashion in the luxury industry.
Consignment is here to stay, and is leading consumers to increase luxury retailer shopping with the intent to resell and purchase more in the future.
For 2019 and beyond, we’ve determined growth for the luxury industry lies in its embrace of progressiveness. As this sector evolves into a digital and circularly-driven industry, luxury can maintain its relevance amongst the future generation of shoppers through an emphasis on the consumer relationship and omni-channel brand experiences. Our perhaps unpopular opinion: luxury can retain prestige in this new age of inclusivity, leading to an increase in longer product life cycles and greater brand relevance.