PARIS — Luxury has bounced back.
That is according to a report from France’s Comité Colbert, which shows that the global luxury market has returned to pre-pandemic levels, and predicts 6 percent growth to $517 billion in 2026.
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“The resilience of this sector is enormous,” said Comité Colbert chief executive officer Bénédicte d’Epinay. The association partnered with BCG for a deep dive into the future of the luxury industry, from topics as diverse as sustainability to craftsmanship, globalization to the metaverse.
One key finding was that luxury houses have major opportunities in sustainability, not only to lead change throughout the fashion industry but to use it as a growth driver.
The high-end implications of quality mean customers already assume that luxury is sustainable, even if the numbers don’t bear that out.
Over 66 percent of consumers believe luxury is sustainable by its nature, and 80 percent of consumers think that luxury houses must be involved in the product lifecycle, including offering repair services, upcycling and recycling old products and materials, and creating secondhand sales channels as well as easing product traceability and authentication.
Luxury has lost some competitive advantages as mass brands made early progress in communication on the internet, and there is continued risk of content standardization. Luxury companies, which have always traded on discretion and the air of exclusivity, have to open their doors to distinguish themselves from mass market competitors.
“The primary opportunity is to talk more because the reality of the luxury business is that brands communicate mostly about their product, about their creation, about their collections, and they don’t communicate so much about the company,” said BCG managing director Joel Hazan, emphasizing the need for companies to focus attention on their sourcing, manufacturing or environmental moves — for example, cutting back on the use of pesticides. “For most [luxury companies] they talk about it much less than the mass fashion companies. They are not so much into looking at the nitty-gritty operations of what they do.”
Hazan also spoke about the elephant in the room — or rather closet: that of overproduction and consumption. “Whatever optimization of the production process is, if products are sold for short cycles with 12 collections per year, and the idea is that a client buys as much as they can independently of how many times they wear the given piece and then it’s stocked in their house, this will never be sustainable,” he said.
This opens up opportunities for the resale market. It will be booming over the next three years, up 13 percent year-on-year — compared with just 5 percent for firsthand luxury goods — and predicted to be worth $52 billion by 2025.
One of the main challenges on this front is reconciling rarity and novelty with secondhand goods. While many luxury brands believe that resale might cannibalize their market, brands can turn this into an opportunity, Hazan said.
“The consumer appetite for secondhand products is undisputable and will not stop. Five years from now the market will be so big that it would be silly not to be part of it,” said Hazan.
Resale sites like Vestiare Collective allow lower price points that bring younger consumers into the brand universe and ultimately build brand loyalty, and become a complementary sales channel.
Tech solutions, such as blockchain, can help ease some of these tensions, as brands will be able to follow every transaction and ultimately take a commission — meaning make money — from each transaction. “It can create financial incentives for luxury brands to accept, acknowledge and facilitate this market.”
Blockchain also serves as the backbone of Web3, where luxury brands should start putting down stakes now, and NFTs.
An increasing share of the decision-making process is moving online, especially at the discovery stage and particularly through social media. And while the market for NFTs might be coming down from a bit of financial over-exuberance, they are here to stay — at least for fashion brands, as young customers want to express themselves digitally or in the metaverse.
“Luxury and NFTs rely on several common concepts that make them compatible: rarity, innovation, a sense of belonging and, more generally, a link with culture,” said Pierre-Emmanuel Angeloglou, strategic missions director, fashion and leather goods at Louis Vuitton.
Digital natives see the future in the metaverse, with 64 percent believing it will allow for the discovery of luxury brands and 59 percent believing it will replace the use of social media.
While young people want to discover luxury brands, they don’t necessarily want to work for them. One of the key problems facing the luxury industry is the lack of workers. Up to 65 percent of craft positions sit unfilled, according to 2021 numbers. LVMH Moët Hennessy Louis Vuitton, Chanel and Hermès are among the companies that have created programs to attract young people into careers in crafts.
Europe may be the heart of the luxury industry, but faces challenges as a growth market as it is “more price sensitive than others.” More opportunities exist in developing markets, such as India, Vietnam, Thailand and the Middle East, and brands should establish a presence there, but the main growth driver will continue to be China.
“And that’s a challenge, because nobody can afford to invest in parallel in 10 markets, and none of those markets is going to be in the short term, or even the long term, the size of China. The challenge is to be able to invest deeply in all of them because if not, someone else will do it.”
It’s a tricky balancing act for legacy companies that want to maintain a global brand identity, but carve out space in diverse markets.
As brands face inflationary pressures, much of that will get passed on in price increases. China has so far been willing to weather price hikes, along with Japan, the Middle East and especially the United States — even with stock market fluctuations.
Added Hazan: “In the last year and a half, the propensity to buy in the U.S. was insane. If you look at consumer prices across all luxury categories, like hospitality, in the U.S. they still are willing to pay a lot.”