CDI Global

Luxury Global Consumer Insight

PERSONAL & EXPERIENTIAL LUXURY REACHING PRE-CRISIS LEVEL IN 2022         


Many sectors were deeply affected by the Covid-19 pandemic. It caused a loss for Global Personal and Experiential Luxury Market of 22% and 50% respectively during 2020. After a severe setback, in 2021 both markets have started to recover and they are projected to close the year with a YoY growth that could range from 20% to 30% for Personal Luxury and from 60% to 70% for Experiential Luxury, compared to 2020.

Personal Luxury Market is projected to wrap up the year at -5% to 0% versus 2019 market value levels, while at -15% to -20% for Experiential Luxury, still suffering from a lingering feeling of uncertainty surrounding the travel environment. The Luxury Personal Market is expected to enjoy a stronger optimism and to close 2022 with a market value growth of 5% to 10% above 2019 levels.

On the other side, Experiential Luxury Market receives a more prudential estimate, as it is projected to land close to 2019 levels (from -3% to +3%).

REBOUND EFFECT

According to a recent BCG survey, when Consumers have been asked in the top 10 luxury spending countries included -- US, UK, Italy, France, Germany, Brazil, China, Japan, South Korea, and Russia – plus United Arab Emirates and Saudi Arabia, about their spending expectation on Personal Luxury for the next year, 35% of them have stated that they plan to increase the consumption in the Country of residence, against 24% of consumers expecting a decrease.

This results in an estimated average of 2.5% increase in (€) spending within Country of Residence, while on the Abroad side, expectations are more pessimistic (4.7% decrease), as 29% of interviewees think about increasing Abroad purchases against 36% of them expect to diminish consumption. On the Experiential side, 36% (with reference to Country of Residence) and 52% (for Abroad) of consumers think about increasing their spending in the next 12 months, while 25% and 35% of them respectively are expecting a reduction, resulting in higher estimated spending increase for Abroad than Domestic consumption (+14.1% vs. 2.4%).

However, Millennials and Gen Z who are particularly relevant for the market, as they are expected to represent more than 60% of Global Personal Luxury Market by 2025, with an estimated market value ranging from 235 to 265 billion euros, more than half of them express a positive feeling about a fast recovery.

US & CHINA LUXURY GROWTH

Consumers from China expect to spend 6% more in the next 12 months compared to last year, counterbalanced by a decrease of 5.6% on abroad consumption. These expectations are consistent with the intention expressed by almost 70% of Chinese consumers to repatriate at least half of their luxury spending even after the end of the crisis. The Chinese share of purchase abroad, estimated at 56% in 2019, is then doomed to shrink in next years and, given the huge importance these consumers have over the Global Luxury Market, brands could be required to invest in order to reinforce their presence in China and to avoid missing out on opportunities from this positive outlook.

US consumers expressed their optimism on both domestic and abroad consumption, with the first hitting a bullish 7.7% of expected spending increase in next year, the latter a "milder" 1.4%. The US is then poised to regain the importance over the Global Luxury market that had been partially lost in the past years. American consumers are expected to outperform pre-covid share estimates. Specifically, for US consumers an increase versus pre-covid expectations of +2-3 p.p. is forecasted, with relevance hitting 19-21% in 2025.

CONTINUED RESET OF DISTRIBUTION

Covid-19 has fast-forwarded the channel mix shift to online and the relevance of omnichannel journeys. Indeed, luxury market pre-pandemic 2023 estimates projected a channel share for offline of 25%, 55% for omnichannel journeys, and the remaining 20% split between brand.com and multi-brand & platforms; as of now, revised estimates suggest even lower importance of offline, down to 15%, and increased relevance of omnichannel (up to 60%) and brand.com and multi-brand & platforms (up to 11% and 14% respectively).

Compared to eCom, omni-channel journeys generate even higher value, for example from +30 to 50% cross-selling on Click & Collect transactions, 2-3x ATV from in-store appointments booked online vs. AOV for pure online transaction and, in addition, lower "cost-to-serve" (e.g. logistics and shipping costs, fewer returns).

NEW BUSINESS MODELS: SECOND-HAND COMMERCE & RENTAL

For what concerns second-hand, the average percentage of consumers that have sold second-hand in the last 12 months has increased compared to last year and is now at 35%. When broken down by age clusters, data reveal that GenZ and Millennials are driving the trend, with 44% and 37% respectively, against an average of 26% for others.

Gen Z and Millennials show a stronger tendency to resort to purchasing compared to other generations (averaging 31% and 27% respectively against 17% for others). Differently from selling, the trend has remained stable compared to last year, with an average of 25% buying second-hand items in the last 12 months.

Consumers are increasingly embracing the possibility to rent second-hand luxury items, with 18% of consumers on average testing this possibility in the last year (+13% vs last year preferences). For renting as well, a strong difference persists among different generations, ranging from 21% of Gen Z and Millennials to 9% of others.

CONCLUSION

After the disruption caused by the pandemic, the Global Luxury Market is now recovering and is expected to get back to pre-Covid levels by 2022.

Regarding Chinese consumers their consumptions patterns are steering towards domestic spending and this repatriation could pose strong implications for luxury brands in the future, which could be called to strengthen their presence in China not to miss out on important market opportunities.

Brands could be required to face a crossroads and choose to sober up to be more appealing to western consumers or to follow the Extrovert trend to meet Chinese consumers’ expectations.

Interactions with customers are becoming more and more direct and diversified, with the increasing importance of effective omnichannel set-ups and personalization in the relationship to produce impacts on their decision-making.

In this direction, emerging tools like virtual live streams are proving effective to drive conversion, but low awareness in some parts of the world, like Europe, suggests brands could have to push more on the promotion of these tools.

Brands must try to be more frequently present in the everyday life of their customers – with virtual environments now representing an important chunk of it. In this direction, the virtualization of luxury, such as through gaming partnerships, is increasingly becoming an opportunity.

New emerging models for accessing and owning luxury must be considered. Second-hand is becoming increasingly popular mostly among young generations, who see in these new models a way to overcome budget constraints and scarcity issues, whilst also engaging in more sustainable consumption behaviors.

It is important to stress that the sustainability topic has now a relevant incidence over purchasing behaviors, again, mostly amongst young consumers, who are ready to punish luxury brands that engage in unsustainable practices, including animal welfare violations, lack of transparency on material usage, and unfair labor practices, amongst others.

By Massimiliano Morpurgo
massimiliano.morpurgo@cdiglobal.com

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