The true luxury global consumer insight

INDUSTRY SECTOR SERIES, 11 June 2019 Page 1

Global Luxury Retail in the Digital Era High-end brands adapt their business models for a younger consumer base

The year 2018 represented solid growth for the global luxury

industry, increasing by 5% to an estimated €1.2 trillion in sales,

with most segments, particularly luxury cars, luxury hospitality,

gourmet food, fine dining and luxury cruises, seeing strong growth

in real terms. The market for personal luxury goods—deemed the

core of the luxury retail market—climbed by 6%, reaching a record

high of €260 billion, and is forecast to continue moderate growth of

3% to 5% annually to 2025.1

According to Bain & Company, Europe remained the top region

for luxury goods sales in 2018, accounting for approximately a

third (€83.2 billion) of all global transactions. Despite this,

Europeans purchased only 18% of global personal luxury goods in

2018, as the market is being driven by Chinese consumers who

bought a third of these items, with 75% occurring outside the

country.

This trend is expected to continue, though with Chinese luxury

buying moving closer to home due to more favourable policies for

domestic consumption. As a result, the share of global personal

luxury goods sales in China is set to grow from 8% in 2017 to 22%

in 2025 at the expense of sales in Europe and the U.S.

The continued robust demand for premium goods and services

has meant that luxury retail continues to outperform the

mainstream and value sectors in terms of sales growth and profit

margins, as seen in Chart 1.

In the wider retail sector, store networks are consolidating but,

conversely, some luxury retailers, such as LVMH and Kering, have

doubled their European store networks over the last 10 years.2

• The global luxury retail market continues to outperform the value and mainstream sectors, driven by demand from Chinese consumers.

• The Millennial and Gen Z generations are predicted to be the primary engine of growth for the luxury market in the coming years, representing approximately 55% of the market in 2025.

• As a reflection of the Millennial and Gen Z digital mindset, brands are making huge investments in their digital operations, with many acquiring or partnering with e-commerce specialists to enhance their online distribution channels.

• Price-conscious younger luxury consumers are driving the rise of the affordable luxury segment and boosting the performance of the premium outlet sector.

• The importance of conscious consumption among the younger generations is driving growth in the second-hand luxury goods market and spurring new business models focused on luxury rental and subscription services, as access to luxury, rather than

ownership, gains traction.

• Luxury goods and experiential luxury services are merging with acquisitions and collaborations that leverage the synergy between retail and hospitality.

• Price and quality are no longer the only indicators of luxury, as brands now provide a personalised service and premium in-store environment to generate added value to consumers.

Key Takeaways

1 Claudia D’Arpizio, Federica Levato, Filippo Prete, Elisa Del Fabbro and Joëlle de Montgolfier, ‘The Future of Luxury: A Look into Tomorrow to Understand Today,’ Bain

& Company, 10 January 2019. 2 Marc Espinet, ‘Luxury Retail: Market Trends and Prospects,’ PMA, Presentation at ICSC European Research Group meeting, 31 January 2019.

11 June 2019

Abstract: This article evaluates the performance of the global luxury retail market and highlights the growing influence of younger luxury

consumers—the primary engine of growth for this market in the coming years. The report looks at how Millennial and Gen Z luxury

consumers are shaping the industry and what it means for bricks-and-mortar retailers.

Chart 1

Sales Growth and Profit Margin by Retail Sector

7%

15%

19% 20%

8%

3%

14%

8%

15%

9% 9% 8%

0%

5%

10%

15%

20%

25%

2007–2015 2016–2018 2007–2015 2016–2018

Sales growth (% per annum) Profit rate (% of sales)

Luxury Mainstream Value Source: PMA

https://www.bain.com/insights/luxury-goods-worldwide-market-study-fall-winter-2018/
INDUSTRY SECTOR SERIES, 11 June 2019 Page 2

The location of luxury stores remains a critical strategic decision

for retailers. Brands are increasingly focusing on large flagship

stores in prime locations in the core destination cities, such as

London, Bangkok, Dubai, Hong Kong, Paris and New York, that

serve as showcases and points of customer engagement. For

some larger heritage brands especially, the average store size is

on the rise.3

I. The growing influence of younger luxury consumers

Luxury consumers are becoming younger and more diverse

and are predicted to be the primary engine of growth for the

luxury market in the coming years. According to global

management consultancy firm Bain & Company, Millennials and

Gen Z accounted for 47% of luxury consumers in 2018 and for a

third of luxury purchases and are expected to represent

approximately 55% of the market in 2025.4

Indeed, a recent survey by market research company

GlobalWebIndex revealed that among those who regularly

purchase luxury items, the majority (67%) are in the 25–44 age

bracket.5 Generation Z and Millennials also emerge as the primary

demographic who purchase luxury items for gifts and special

occasions—a third fall into the 16–24 age bracket and just under a

quarter are aged 25–34. (See Chart 2.)

These younger audiences are changing the way luxury is

defined and are reinventing the brand-consumer relationship.

Traditionally associated with items like handbags or jewellery,

‘modern luxury’ also includes categories such as household/

furniture items, cars/automotive products, travel, electronics,

experiences (e.g. glamping,6 exclusive event access) and even

food ingredients.7

Known for their desire for experiential retail and instant

gratification, their individuality and sustainable outlook and their

quest for an Instagram lifestyle, this younger generation of

consumers requires a different approach if premium brands are to

capture and maintain their attention. For that reason, traditional

luxury brands are modernising their business models to adapt

to the expectations of their growing Millennial and Gen Z consumer

base.

II. How are younger luxury consumers shaping the industry

and what does it mean for bricks-and-mortar retailers?

a) Omni-channel expectations driving digital investment

The Millennial and Gen Z generations are highly connected

digital natives with elevated omni-channel expectations,

demanding speed and convenience from retailers. They interact

with brands extensively online and via social media, predominantly

using their smartphones, which is fuelling the rapid growth of

m-commerce. Smartphones rose from 3.6% of digital commerce in

2013 to 23.6% in 2018 and are expected to grow to 40.8% in 2023,

according to market intelligence firm Euromonitor International.8

The luxury industry is looking to capitalise on this trend and Yoox

Net-a-Porter has recently announced that it will become one of the

first to launch a shoppable Instagram account, alongside luxury

brands such as Dior, Prada and Michael Kors.9

In 2018, 90% of global personal luxury goods sales took place

in-store—the majority of which were in monobrand stores—and

online sales accounted for only 10% of the global personal luxury

goods market, as seen in Chart 3. However, as the share of

3 Marie Hickey, Anthony Selwyn and Oliver Fraser-Looen, ‘The Evolution of Luxury Retail: 2019 Outlook,’ Savills, 4 April 2019. 4 D’Arpizio, Levato, Prete, et al., 2019. 5 GlobalWebIndex, March 2019.The base consists of 928 U.S. and 1,049 UK luxury buyers and 353 U.S. and 426 UK non-luxury buyers aged 16-64. 6 Glamping is defined as a type of camping that is more comfortable and luxurious than traditional camping. The word is a mixture of 'glamorous' and 'camping.' 7 Chase Buckle, ‘The Luxury Market in 2019: What Brands Should Know,’ GlobalWebIndex, 1 April 2019. 8 Euromonitor International. 9 Ben Stevens, ‘Yoox Net-a-Porter to Become One of the First to Launch Shoppable Instagram Account,’ Charged, 15 May 2019.

Chart 2

Purchase of High-End or Luxury Products/Services by Age

19%

33%

25%

19%

14%

34%

23% 22%

18% 16%

33%

15% 15% 15% 15%

7%

17%

23%

26% 27%

7%

12%

15%

22%

28%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Regular Treaters

For Gifts Occasional Treaters

Rarely Never

16-24 25-34 35-44 45-54 55-6416–24 25–34 35–44 45–54 55–64

Chart 3

Share of Global Personal Luxury Goods Market

by Distribution Channel and Format

Source: GlobalWebIndex March 2019

10%

25%

29%

25%

22%

17%

20% 13%

12% 13%

6% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018 (e) 2025 (f)

Online Monobrand stores Speciality stores

Department stores Off-price stores Airport

20252018

Source: Bain & Company

Note: 2018 percentages are estimates; 2025 percentages are forecasts.

https://www.savills.co.uk/research_articles/229130/280065-0/the-evolution-of-luxury-retail--2019-outlook
https://dictionary.cambridge.org/dictionary/english/glamping
https://blog.globalwebindex.com/chart-of-the-week/luxury-market-2019/
https://www.chargedretail.co.uk/2019/05/15/yoox-net-a-porter-to-become-one-of-the-first-to-launch-shoppable-instagram-account/
INDUSTRY SECTOR SERIES, 11 June 2019 Page 3

younger luxury consumers is set to grow, so too is the share of

online sales, which is forecast to reach a quarter of the personal

luxury goods market in 2025.

Much of this online sales growth, however, is a direct result

of luxury bricks-and-mortar retailers investing in their omni-

channel operations. For instance, all of the top 15 online luxury

brands listed in a recent article in the industry publication Luxe

Digital have monobrand bricks-and-mortar stores.10 Furthermore,

online luxury retailers are increasingly opening physical stores,

including luxury fashion e-commerce business Matchesfashion,

which in September 2018 opened a flagship retail, events and

creative broadcasting space in the UK capital, aiming to ‘bring

together the online shopping and content experience into one

permanent London residence.’11

In addition, enhanced technology, such as blockchain, is

improving transparency and the authentication of purchases,

generating greater confidence in buying online. For example,

LVMH has recently announced that it is preparing to launch a

blockchain system that will help consumers authenticate luxury

products and trace their entire lifecycle, from source to original sale

location and all subsequent points of ownership.12

The growth of online luxury sales is also creating increased

competition in the market. Indeed, Luxe Digital reports that luxury

is no longer restricted to legacy brands and that digital-born

players and niche brands are proliferating.13 These digital-first

luxury brands do not have legacy systems and processes holding

them back, which means they can innovate fast and are shaking

up the traditional luxury market.

As a result, many are acquiring or partnering with e-commerce

specialists to enhance their online distribution channels. This is

exemplified by Swiss luxury brand owner Richemont’s full

acquisition of Italian luxury ecommerce group YOOX Net-a-Porter

(YNAP) in May 2018, and UK-headquartered luxury brand

Burberry’s partnership with global omni-channel technology

platform Farfetch to further strengthen and expand its e-commerce

presence.

The trend towards greater digital investment also extends to

marketing strategies. As the younger generations object to mass

marketing and impersonal sales pitches, brands are more and

more delivering their message by way of innovative digital

campaigns and viral media using a storytelling approach.

Millennials and Gen Z consumers like to read peer reviews and

product experiences and are heavily influenced by celebrities and

social media stars. Luxury brands are capitalising on this online

discovery process by working with influencers who raise

awareness and promote products in a video or social media post.

Online video marketing is an effective way of engaging the

younger shoppers, who avidly watch YouTube. Social media is

also a key marketing channel, though brands are experimenting

with new media formats, as Facebook and Twitter are relegated in

favour of Snapchat and Instagram stories. Regardless of the

channel, in order to capture the attention of Millennial and Gen Z

consumers, promotional content needs to be bite-size and

relevant, and contextualise luxury products in daily life,

making them accessible to the new younger luxury consumer.

b) Outlet centres benefit from shift to affordable luxury

The younger generation of luxury consumers carefully considers

affordability when purchasing premium goods and services. They

regularly use their smartphones to compare prices between online

and in-store options.

Often viewed as an oxymoron, luxury and affordability can

actually go hand in hand. Luxury is about achieving quality at a

price consumers feel is good value, and many brands provide

more affordable price points for those seeking lower-priced but still

premium options.

In this respect, the outlet sector seems to increasingly resonate

with consumers and has been hugely successful in making luxury

more accessible. In the UK, which has the highest floorspace of

outlets per capita in Europe according to CBRE, the outlet sector is

outperforming the wider retail market, recording almost double-digit

annual sales growth between 2012 and 2017.14 The premium

outlet sector, in particular, is performing strongly, with Bicester

Village commanding high sales densities. The year 2020 will also

see two new additions to the UK’s premium outlet market when

designer villages in Cannock in the West Midlands and Scotch

Corner in North Yorkshire open for business.

c) Conscious consumption driving new luxury business

models

Linked to the concept of affordable luxury and accessing

premium goods at a better price/quality ratio is the growth of the

second-hand luxury goods market, which also has its roots in

the circular economy and the desire to extend the lifecycle of

products.

Second-hand luxury goods are a means of de-emphasising the

ostentation traditionally associated with luxury, which is a key

concern for the younger generations who are mindful of the values

associated with conscious consumption. Almost two-thirds of

Millennial and Gen Z ‘True-Luxury’ consumers (those who made at

least two to four luxury purchases in the last 12 months) said that

sustainability influences their purchasing behaviour, compared with

56% of Gen Xers and 46% of Baby Boomers.15

Indeed, 57% of Gen Z and 50% of Millennial True-Luxury

consumers consider the resale value when purchasing luxury

goods, compared with only 35% of Gen Xers, 24% of Baby

Boomers and 22% of Silvers. Furthermore, 54% of Gen Z and 48%

of Millennial True-Luxury consumers already participate in the

second-hand luxury goods market—a much higher proportion than

their older counterparts. (See Chart 4.)

As a result, the second-hand market for personal luxury goods

has grown 9% per year since 2015 to reach €22 billion in 2018—

80% of which was in the watches and jewellery category with the

remaining 20% in fashion and accessories. The trend towards

resale is more prominent in Europe, accounting for 55% of the

10 Florine Eppe Beauloye, ‘The 15 Most Popular Luxury Brands Online In 2019,’ Luxe Digital, February 2019. 11 https://www.matchesfashion.com/5carlosplace. 12 Ian Allison, ‘Louis Vuitton Owner LVMH Is Launching a Blockchain to Track Luxury Goods,’ Coindesk, 26 March 2019. 13 Florine Eppe Beauloye, ‘The Future Edition: 6 Critical Luxury Trends To Stay Ahead In 2019,’ Luxe Digital, January 2019. 14 CBRE data cited in Sahar Nazir, ‘UK’s Outlet Sector Grows Ahead of Shopping Centres,’ Retail Gazette, 29 March 2019. 15 BCG-Altagamma, ‘2019 True-Luxury Global Consumer Insight,’ 17 April 2019, p. 42. 16 D’Arpizio, Levato, Prete, et al., 2019.

https://luxe.digital/digital-luxury-ranking/most-popular-luxury-brands/
https://www.matchesfashion.com/5carlosplace
https://www.coindesk.com/louis-vuitton-owner-lvmh-is-launching-a-blockchain-to-track-luxury-goods
https://luxe.digital/digital-luxury-trends/luxury-future-trends/
https://www.retailgazette.co.uk/blog/2019/03/uks-outlet-sector-grows-ahead-shopping-centres/
http://media-publications.bcg.com/france/True-Luxury%20Global%20Consumer%20Insight%202019%20-%20Plenary%20-%20vMedia.pdf
INDUSTRY SECTOR SERIES, 11 June 2019 Page 4

global second-hand personal luxury goods market, compared with

a quarter in the U.S. and 20% in the rest of the world.16

The growth of the luxury goods resale market has been

supported by improved professionalism of second-hand trade

channels, with marketplaces such as Vestiaire Collective and Vide

Dressing providing buyers and sellers with greater confidence and

protection. However, whilst the online second-hand market is

indeed expanding, physical stores still accounted for 75% of the

personal luxury goods resale market in 2018.17

Also connected to affordable luxury and conscious consumption

is the greater importance of the sharing economy. With many

consumers choosing access to luxury over ownership of it, new

business models are emerging founded on luxury rental and

subscription services, with companies such as Rent the Runway,

TheRealReal, Rotarity, Armarium, Flont and Vivrelle looking to

capitalise on this trend.

Although many luxury brands and retailers have feared that the

rental market would dilute brand equity and cannibalise sales, an

increasing number are warming to the idea that rental could

actually support full-price sales and attract younger consumers

who might try out the brand and build an affiliation before

committing to a purchase.

d) The power of partnerships—the synergy between luxury

retail and hospitality

Once considered a brand dilution, collaborations are now seen

as a brand enhancement, providing continual newness and

reinvention, driving awareness and giving traditional brands a

modern edge as they seek to preserve their exclusivity and

relevancy. Examples of unique partnerships in the luxury sector

include Louis Vuitton and Supreme, Chanel and Pharrell, and

Fendi and Fila.

In recent years, collaborations have not only been between

luxury labels but also in conjunction with mass retailers to offer

mainstream capsule collections built on limited inventory to create

hype and a sense of urgency. This is particularly appealing to

younger generations striving toward individuality. For Millennials in

particular, scarcity equals desirability, and they would rather

brands create regular small stock drops, rather than seasonal

collections—an approach pioneered by streetwear brands.

An emerging strategy, however, is the development of

partnerships between luxury sectors, as exemplified by LVMH’s

acquisition of luxury travel and hospitality company Belmond in

April 2019, including its signature hotels, cruise ships and trains.

Through the acquisition, LVMH has significantly expanded its

presence in the world of ultimate luxury hotels, adding to the

hospitality offerings of Cheval Blanc Maisons (in Courchevel,

Randheli, Saint-Barthélemy, Saint-Tropez and soon Paris, London

and Los Angeles) and Bvlgari (with hotels in Milan, Bali, London,

Beijing, Dubai and Shanghai).

LVMH’s investment in the travel and hospitality sector

represents a growing trend for ‘experiential luxury,’ bringing

together luxury goods and services. As a result, experiential

luxury (hotels, restaurants, wines and liqueurs) is growing more

and at a faster rate than personal luxury (clothing, accessories,

jewels, watches, perfumes and cosmetics). The former was worth

€590 billion in 2018 and is expected to grow by 5% from 2018 to

2025, while the latter was worth €330 billion and is forecast to grow

by 3% over the same period.18

Luxury retail brands in the hotel sector is a logical combination,

enabling clients to immerse themselves in their brand and to live

their story. Indeed, Jack Ezon, founder and managing partner at

Embark, a luxury lifestyle partnership that develops bespoke travel

experiences, believes ‘Hotels are becoming hubs for future

pop-ups, helping both the hotel and fashion brand position

themselves…and to engage ultra-high net worth clients with

brands.’19 This trend, he says, will be particularly widespread in

secondary markets, where luxury consumer goods brands might

not otherwise have a physical presence.

e) Growing desire for personalised in-store experiences

The relationship between luxury and experience is also

instrumental in-store. Given that price and quality are no longer the

only indicators of luxury, brands are providing a personalised

service and premium in-store environment to generate added

value to consumers. This is particularly important for price-

conscious Millennial and Gen Z shoppers, so retailers selling high-

consideration purchases must invest in experience and deliver a

range of unique services and events to meet their expectations

and help them to justify any potential expenditure.

A notable example is World of Niche, an appointment-only

footwear boutique in Lower Manhattan, New York, where visiting

the store is shrouded in secrecy. After booking online, potential

customers are met at the store by an opaque window display,

which, when their appointment time comes around, de-mists,

revealing a rose gold sphere. The door then opens and the

concierge appears, handing the customer a pair of leather slippers

to wear in-store. Inside, the space is built out of three principal

materials—birch wood, rose gold and marble—and, once the

customer is in position, the concierge pulls the rose gold globe

17 Ibid. 18 BCG-Altagamma, ‘2019 True-Luxury Global Consumer Insight,Sixth Edition,’ 17 April 2019, p. 3. 19 Jack Ezon quoted in Laura Powell, ‘Luxury Brands Are Making Unconventional Partnerships the Next Big Thing,’ Skift, 22 January 2019.

Chart 4

Participation in Second-hand Luxury Goods Market by Generation

11% 9% 9% 12% 17% 18%

15% 21% 18% 11% 8%

13%

19%

24%

21%

15% 11%

10%

0%

10%

20%

30%

40%

50%

60%

All Generations

Gen Z Millennial Gen X Baby Boomer

Silver

Purchase only Sell and Purchase Sell only

54%

48%

38% 36%

41% 45%

Source: BCG-Altagamma, True-Luxury Global Consumer Insight Survey, 18

Dec. 2018/19 Jan. 2019 (12k+ respondents in 10 countries).

http://media-publications.bcg.com/france/True-Luxury%20Global%20Consumer%20Insight%202019%20-%20Plenary%20-%20vMedia.pdf
https://skift.com/2019/01/22/luxury-brands-are-making-unconventional-partnerships-the-next-big-thing/
INDUSTRY SECTOR SERIES, 11 June 2019 Page 5

apart to reveal twin hemispheres, each containing three types of

shoe in three colourways. Clients may then try on as many shoes

as they wish, provided that no photographs are taken.

Also in New York, Chanel’s new beauty concept store

encourages guests to discover and play either on their own or led

by an expert. The boutique features an appointment-only perfume

bar entered through a black door. Inside, customers are invited to

smell different scents whilst blindfolded to eliminate the influence

of packaging.

For younger generations craving individual and unique

experiences, personalised and highly experiential service such as

Chanel’s is crucial. As a result, bespoke made-to-measure and

product customisation services are growing in popularity for high-

end retailers.

Conclusion

The luxury retail market is forecast to continue to grow strongly

in the medium term, driven by a new breed of Millennial and Gen Z

luxury consumers. In order to adapt their business models to

realign themselves with the values of the younger generations,

high-end brands are reimagining what luxury is. New luxury goes

beyond price and quality, delivering added value by way of a

premium, personalised experience across both in-store and online

channels and leverages the synergy between luxury retail and

hospitality.

Additionally, the younger cohort of luxury consumers brings to

the spotlight new forms of consumerism based on conscious

consumption rather than conspicuous consumption, which has

traditionally been associated with the luxury industry.

Looking to the future, in order to nurture market growth from the

younger generation, the luxury retail industry will likely need to

evolve to focus more prominently on an exclusive service with an

inclusive price point, supported by a brand story that is grounded in

transparency, authenticity and social responsibility.

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