The Luxury Mindset Shift
What luxury brands need to know about the cultural trends and technological advances that are shifting luxury consumption for millennials and Gen Z
Luxury brands are the ultimate exercise in brand storytelling. A Chanel handbag is not necessarily more functional or beautiful than a Coach, yet it is seen as a better status symbol, which is simultaneously inferred from and validated by its higher pricing as well as its worldwide brand recognition. People aspire to luxury brands because they convey social status to others; thus, the real value of luxury consumption is to be seen, to signify to the in-group that “yes, I am one of you.”
As our lives move online, the reach of luxury consumption naturally exploded, subsequently sending it through a hype-to-backlash cycle. The early Instagram “flex” culture, often conveyed via luxury goods, might be aspirational for a short minute, but it was quickly met with ridicule and shamed into oblivion. The display of luxury consumption wasn’t much of an issue when rich people were hanging out in real life with (mostly) other rich people, but the barrier of class stratification was removed once the context shifted from say, an upscale restaurant to Instagram, where access is democratized by default. You can turn off the comments, but you can’t stop the screenshots and subtweets.
In response to this shift in consumption context, a new generation of luxury consumers started to change their priorities. For one, they started pursuing digital collectibles that are native to the digital world and carry more cultural cachet than physical goods to the online “in-group.” NFTs hit an inflection point in adoption this year and exploded in value as they create digital scarcity and allows for traceable ownership. For more on this trend, we recently explored the potential application of NFTs for luxury fashion in the final section of this article.
For another, they started to prioritize personal curation over brand lookbooks in an effort to cultivate personalized aesthetics that convey taste and substance. Self-expression is prioritized over an empty display of wealth, but social status is still subtly conveyed via the careful curation of brands and staying ahead of trends. In a digital context where consumption is often scrutinized, frivolous spending is considered bad taste, and cool-ness is now conferred from unique styles that lean into personal interests and value while rebelling against groupthink and algorithmic trends.
In other words, the main social signifier has shifted from implied wealth to taste, which is a far more nebulous concept and often relies on “in-group” knowledge. Different social groups have different definitions of taste, and trying to keep up with algorithmically influenced trends will likely end up making one appear “cheugy.” While taste is hard to account for, values are concrete concepts that are much easier for brands to align on. Study after study shows that consumers increasingly demand brands align with their values, especially for those from the younger generations. In today’s polarized cultural climate, luxury brands can no longer afford to be oblivious.
Navigating the Tension between Inclusivity and Exclusivity
Inclusivity is a particularly tricky topic for luxury brands to tackle, for the intersectionality between class, race, and gender often creates a landmine field for a category that is fundamentally built on exclusivity. Some luxury brands have made progress on being inclusive of race, gender, and body types by creating new lines or diversifying its workforce, although less so in top leadership positions. Support for marginalized groups such as the LGBTQ community or people with disabilities may be comparatively easier to navigate, but often risks falling into the trap of lip service and tokenism.
One common tactic that luxury brands deploy to make their brands more inclusive is to create digital experiences that are accessible to all, be it a live-streamed runway, a VR fashion show, or a branded video game, while maintaining the exclusivity via product pricing and manufactured scarcity. It should be noted that accessibility is only a starting point of inclusivity, and more initiatives should be made to ensure customers previously neglected by luxury brands receive equal amounts of consideration in brand messaging and in-store experiences.
At the end of the day, actual accessibility of luxury goods is secondary to the brand narrative crafted on brand value and purpose, and putting money where your value is tends to be the best bet. Patagonia jackets may still be too expensive for most people, but the brand equity it gets by advocating for its progressive values with concrete actions far outweighs the short-term loss of profits. Brand purpose is only authentic when backed up with actions, and luxury brands need to be ready to go the extra mile beyond diverse representations in media and brand assets.
Taking a Multi-Pronged Approach To Sustainable Luxury
Sustainability is a double-edged sword for luxury brands to embrace. Selling sustainability as a luxury no doubt invites further criticism, but not trying is a bigger risk for brand perception as consumer activism grows.
On one hand, makers of luxury goods already incorporate artisanal manufacturing and careful material sourcing, and they can naturally absorb the added cost of sustainable production into their pricing. On the other hand, luxury experiences in dining, travel, and leisure often result in excessive waste and carbon emission that goes counter to sustainability pledges. The increasing stigma of taking private jets serves as a prominent example in this regard. Luxury brands should be aware of this dichotomy and fine-tune brand messaging accordingly.
While there is an easy narrative for luxury brands to build against the kind of mass-oriented fast fashion that is often deemed wasteful and unsustainable, punching down is never a good look for high-end brands to take. Instead, increasing R&D spending on innovations for more sustainable manufacturing and logistics would be a better bet in the long run. Material innovations can also aid luxury brands’ sustainability pledge, as evidenced by Prota Fiori shoes made from upcycled fruit skins.
Rather than resisting the expansion of sales channels, especially those that deal in resale, perhaps it is better for luxury brands to lean into them as part of the sustainability pledge. Take Arc’teryx for example. The upscale outdoor clothing brand is launching a centralized hub called “ReBird,” which expands upon the brand’s Used Gear Program to include its first collection of upcycled gear made from post-consumer materials. It will also provide access to Arc’teryx’s used gear and repair services, thus incorporating resale into its own online retail operations.
Get Ready for a New Generation of Luxury Shoppers
It is estimated that over the next two decades, the largest intergenerational wealth transfer in history will pass down over $30 trillion in inheritance from baby boomers to millennials and Gen Z. Some luxury brands understand this impending change in clientele makeup, and launched cringy campaigns targeted at younger generations, often to alienating results. Without brand purposes that place the narrative in a larger social context, these pandering efforts often fail to land with the intended impact.
As the latest U.S. census results confirm, the younger generations are more diverse than ever; they are also more likely to be environmentally conscious. This shift in consumer preferences necessitates a shift towards purposeful consumption. In order to truly connect with the younger customers that will redefine luxury consumption, luxury brands need to start crafting new brand narratives today. High quality and pricing alone are no longer enough to justify the prestige; what your brand stands for in a larger social context is a crucial factor that drives consideration.
Besides realigning brand value, luxury brands also need to rethink their distribution and sales channels. Despite its robust online presence across social and ecommerce channels, Chanel famously refused to sell its clothes online as a way to maintain control over its brand image and retail experience. However, the success story of Farfetch points to a new distribution model that could become more popular as younger customers age into affluent spenders. Focused on stitching together all the online and offline touchpoints luxury consumers encounter into one seamless experience, Farfetch has become the world’s largest digital marketplace for luxury goods. More than 570 brands, including Burberry, Gucci, and Prada, now sell directly on Farfetch via a virtual concession model where they — not other retailers — list and control the items for sale.
How luxury brands approach the burgeoning “grey market” will also become a key consideration. New platforms and dealers such as Cettire and Italist are able to offer steep discounts on the latest styles. Per a recent report from the New York Times, these platforms at scale have expanded rapidly during the pandemic, along with unauthorized watch dealers like Authenticwatches.com and Chrono24 that are reshaping the luxury watch market. Previously operating as a side effect of international trade and unknown to most Western consumers, these platforms are starting to catch on with them as luxury purchases gradually move online, disrupting the control luxury fashion brands have over their distribution.
Overall, faced with a re-alignment of aesthetics, purposes, and shopping habits with the growing new generation of digital-native, value-driven consumers, legacy luxury brands have to start making changes in every aspect of their business to ensure their brand equity during this mindset shift, or risk losing cultural relevance as status symbol.
Want to Learn More?
The luxury category is a dynamic space where innovations thrive on big budgets yet lag behind the curve in retail transformation. What we covered in this article is but a high-level overview of some of the market trends at play. The Lab is creating a new category disruption report that dives deeper into the various aspects of the changing luxury market, such as the impact of wellness culture, the resurgence of shared joy, and the various points of tension that will move luxury into the future.
If you wish to access this report, or simply start a conversation around the key trends shaping the future of luxury, please reach out to our Group Director Josh Mallalieu at josh@ipglab.com.
