The luxury market is growing despite inflation and Ukraine war. Here's why

Though businesses all over the world have struggled to survive, this isn't the case with luxury brands. Though the transition has been different, luxury brands have thrived and grown by 17-19% in Q1 of 2022. How? They have entered the virtual world, have transitioned to sustainable options and have decided to be present at every place where their primary customer base can be found ie the millenials.   

Bain & Company, which is the world’s leading advisor to the global luxury goods industry, has collaborated with Fondazione Altagamma, the Italian luxury goods manufacturer to release a study titled 'Luxury 2022 Spring Update – “Rerouting the Future.”' The report mentioned that the luxury industry has grown by 17-19% in the first quarter of 2022 and had grown by 13-15% in 2021. 

SO HOW IS THE LUXURY MARKET BOOMING?

1. Entry into the virtual world: Luxury brands like Gucci, Louis Vuitton, Burberry, Balenciaga, Dolce and Gabbana and many more have noticed that their growth depends on geopolitical issues. Since their customer base wants easy access to exclusive products no matter how and what price, it only makes sense for luxury brands to diversify into the metaverse, social media, and gaming. The report estimates that by the end of 2030, the estimated weight of digital assets and the metaverse will account for between 5-10% of the luxury market. But why do the luxe brands prefer metaverse?

Well, remember when brands would have these massive clearance sales to clear their physical stock and would have products slashed with deep discounts? Well, they don't have to do that with virtual goods. Also, since virtual goods don't involve logistic and raw material issues like the physical ones, and sell for a higher price than the same goods in real life, brands can make better profit margins by selling in the metaverse. Companies can bring back old designs and make money, even when goods are resold. 

2. Going for sustainable transformation: 

The wealthy are choosing to purchase sustainable options and have dictated a change in the trends.

As per a report, luxury fashion brands are using more textiles made with sustainable natural materials like hemp, ramie, and bamboo. Leaves, rinds, and other agricultural waste are being used to create new fabrics. In fact, brands are also going the natural way when it comes to ethically-sourced packaging. Brands are favoring FSC-certified paper over plastic, are using natural, non-toxic dyes like soy instead of traditional petroleum-based ink, and offering backyard compostable packaging. At a higher price of course. 

3. Choosing preferences of customers

Millennials are becoming more conscious and are purchasing products from brands that are inclusive and more aligned with their own values, even if it comes at a higher cost. Since they influence more than 60% of luxury sales, this is quite obvious: Brands have to go as per customers' preferences, even if it is inconvenient for them. Have you seen how brands are hiring diverse types of models to advertise their products?  Be it either of the Kardashian brands like Good American or Skims? Millenials are choosing vegan, cruelty-free, gluten-free products and those seem to be rising.

For eg: Tiffany was once under fire for bringing conflicts in African countries which sourced their diamonds. They now have a zero-tolerance policy for purchasing diamonds from countries with human rights infringements. 

OTHER TRENDS
4. It seems like the 'direct-to-customer' (D2C) channels are growing and sales of items like formal wear, iconic bags, and high-end jewelry are peaking on account of recovery in social life and working from an office.
5. South Korea is seeing a trend where local spending is replacing foreign tourist demand because South Korea has taken to increasing cultural diversity in its luxury goods. Meanwhile, the USA is tapping into its diverse customer base to tap into a larger customer base and grow in second-tier cities. Europeans seem to desperately want to go back to normal, which is leading to a rebound growth in intra-regional tourism.

6. Hard luxury, which is driven by branded jewelry, has seen the highest growth- 9% while sales of luxury watches have slowed down and are about 6.5%. What is interesting is the way the market for rented luxury watches seems to be growing. As per the New York Times, the younger generation is more willing to embrace renting and making secondhand purchases because there is a strong shift from owning to having an experience.  

7. America expected a 7% growth in the luxury industry but actually saw a 10% growth. Europe expected an 8% growth but saw 12% growth instead. The Asian market has grown by 14% while the Middle East has seen a 10% growth.