Why Now Is The Best Time To Rethink Your Luxury Strategy

Key Takeaways : Even before COVID-19, young millennials and Gen Zers combined to take over as the leading luxury consumer groups worldwide. But most managers didn’t know how to address their needs. More than 70 percent of personal luxury purchases in China are currently being made by women, and over 95 percent of their luxury purchase decisions start with the digital journey. Roughly 20 percent of brands will account for 80 percent of future sector growth. As such, the majority of brands will underperform significantly or even disappear completely. Almost exactly one year ago, I spoke at a luxury hospitality event in Bali where the topic was how luxury has been disrupted and what companies should do about it. The audience was 400 senior managers of travel & hospitality companies, and they were shocked at how much customer expectations of luxury brands had changed. But none of them even remotely suspected how the hospitality & travel sector would soon be upended. As we all know, practically all luxury sectors have been impacted by the events of the past months, and it is safe to assume that the ripple effects of the pandemic will reach far into 2022, if not longer. But, more importantly, brands will not automatically recover once the luxury sector gets back into growth mode. That’s because only brands that are future-ready will return to strong growth. In fact, the majority of brands will underperform even when markets are bullish again. The reason? Even before COVID-19, nothing in the luxury sector was the way it had been even just a few years earlier. Young millennials and Gen Zers combined to take over as the leading luxury consumer groups worldwide. However, most managers don’t know how to address their needs. The importance of younger customers is even greater when it comes to China, where more than 80 percent of all luxury consumption is done by customers who are younger than 40. They are not only digitally savvy; they are digitally native. On top of that, more than 70 percent of personal luxury purchases in China are currently being done by women. It is fascinating to observe how many brands still underestimate the importance of young, affluent female customers. More importantly, over 95 percent of their luxury purchase decisions start with the digital journey. That’s right! Almost every luxury decision is now influenced digitally. That changes everything for brands. One leading European luxury fashion brand saw a sudden drop in their in-store sales even before the pandemic began. They suspected an issue with the in-store experience and were ready to deploy significant investments into ramping up their real estate. But we noticed a different reason when using sophisticated, artificial intelligence-based, social-measuring technologies. The real reason for the traffic decrease was not the store experience. It was what happened before customers entered the store along the digital journey. In the end, the root cause was simple: Competitors targeted the brand’s customers, and their messaging was more convincing. As a result, they lost the digital battle before the purchase decision was made, and customers were redirected from that brand to competing brands. What should the warning be to other luxury brands? This fashion brand had significant digital marketing investments, and they thought they had a good grip on the competitive landscape. It turned out they were wrong — and they would never have known it. While practically all brands now are aware of the importance of digital, very few brands actually have strategies in place that allow them to create a competitive advantage via the digital journey. That will almost always endanger their future. COVID-19 has been a powerful accelerator. The disruption that was bubbling to the surface before the pandemic is now accelerating dramatically. Customer decision processes have become even more digital. As such, the importance of creating a competitive advantage during the digital customer journey has increased. Today, brands can’t just go back to “business as usual.” Those who try to will not find any business left, or they will be faced with sluggish and decreasing sales. Luxury brands must use this time to undergo a rigorous brand audit, identify gaps, and address those gaps. We found that more than 90 percent of the brands we audited had significant issues that would impact their future-readiness. They ranged from brand equity definitions to shortcomings in customer experiences. In many cases, those gaps would have led to catastrophic outcomes. The rebound of the luxury sector will be driven by the few brands that do their homework. If the Pareto-principle is a good indicator, 20 percent of brands will account for 80 percent of future sector growth. The majority of brands will underperform significantly or even disappear completely. I recently predicted that up to 50 percent of today’s luxury brands would not survive to see the next decade. And many fresh, digitally-native startups are ready to launch and take their places. Therefore, it’s now or never. Don’t be on the wrong side of history. Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger

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Why Now Is The Best Time To Rethink Your Luxury Strategy