Following a sharp drop in sales in 2020 due to the pandemic, the personal luxury goods segment experienced a V shaped recovery in 2021 and is now set on a historic growth trajectory – forecasted at 29% YOY for 2022 (Bain & Company). The recovery has been driven primarily by domestic spending in the US and China as Covid-19 continues to curtail international travel, as well as increased adoption of online channels – a trend that was well underway pre-pandemic. The following trends outline the forces shaping the luxury market in 2022.
E-Commerce is fueling the recovery.
In a category that previously relied almost exclusively on brick-and-mortar sales for high-price items, consumer behavior is increasingly shifting online. According to Bain & Company, online sales jumped 50% between 2019 and 2020 and were up an additional 27% in 2021 thanks to increased adoption during Covid-19. Important for marketers to note, brand-controlled websites experienced the lions’ share of growth and now account for 40% of the online segment (up from 33% from in 2019). From an investment perspective, the top Luxury retail brands have shifted media dollars in mass from traditional to digital and social channels apart from Hermès – who keeps tight distribution and exclusivity at the core of their brand strategy (Kantar).
Brands are investing in personalization of both product and experience.
Covid-19 has massively disrupted consumer purchasing behavior, leading them rethink how they shop and the value they expect to receive – specifically as it comes to personalization and ease. Luxury companies are now using data analytics to measure and predict what consumers want and are developing automated production capabilities to provide it. This trend towards “mass-customization” extends to the overall shopping experience, with brands providing personalized product recommendations to shoppers in-store, as well as unique customer journeys online. AI-powered chatbots are another burgeoning trend that allow for immediate, one-to-one customer service (Bain & Company). This shift is providing marketers an opportunity to rethink their approach and provide a more effective consumer strategy.
Metaverse mindset – luxury brands are playing in the virtual world.
In the frontier of the metaverse, a network of shared virtual worlds that users can access through a variety of platforms and devices, a new marketplace for digital luxury goods has emerged. Luxury brands are quickly capitalizing on the opportunity to sell virtual product to outfit users’ avatars, along with exclusive and collectable NFTs (non-fungible tokens). Gucci, Burberry, Balenciaga, and Dolce & Gabbana are just a few of the luxury players already extending promotional activity into the virtual world. As the metaverse becomes more mainstream, now is the time for brands to begin thinking about taking steps into this new arena that align with their brand offering.
It’s time to walk to the walk when it comes to sustainability.
Consumers expect more from brands than ever before, and now actively seek out those that align with their personal values. According to YouGov data, nearly a third of luxury consumers prefer to shop brands that put sustainability first. To meet expectations, luxury brands must develop an authentic voice on social issues and begin investing in sustainability across their supply chains that allow for real accountability and transparency.
Social shopping must be seamless.
With consumer dollars shifting online in mass, having a frictionless social shopping experience is non-negotiable. According to Forbes, the average online shopping cart abandonment rate is 70%, with 49% of consumers citing extra costs at checkout as the main reason for abandonment. 87% of online shoppers will abandon their carts if checkout is complex, and 55% will abandon the retailer completely. Brands must invest heavily in a seamless social shopping experience and one-click checkout options, or risk losing sales to retail brands that get the experience right.
Brands leaning into these trends are a driving force as the personal luxury goods category as it has experienced a huge resurgence following pandemic lows. The surge is being driven by young, digital savvy consumers that have an appetite for immediate, seamless, and personalized experiences. They want to shop when, and where it’s convenient for them – and that is increasingly in growing online channels. While the demand on brands to be flexible and fast-moving has never been greater, neither has the opportunity.