Young big spenders have unique expectations of luxuries

Gen Z is such a contradictive group. They spend a lot of time searching for dupes(find it in our previous newsletter: Dupe ), long for luxury products and experiences, and are willing to pay more than the senior generations. The next generation has the affordability to shop for luxury brands, but their demands differ a lot from those of the senior generation. This time we'll explore some luxury consuming trends of the younger generations (esp. Gen Z & Millenials). The two seemingly contradictory behaviors of purchasing inexpensive items and indulging in luxurious spending are harmoniously united within them.

Luxury brands and Gen Z are picking each other

Gen Zs are a unique and interesting group of consumers when it comes to luxury brands. Unlike previous generations, Gen Zs have grown up in a world where technology is constantly evolving, and social media has become an integral part of daily life. As a result, their perceptions of luxury brands and what they value in a brand may differ from what previous generations have valued.

Luxury brands prefer the younger generation

The luxury market's consumer base is set to grow from about 400 million people in 2022 to 500 million by 2030. These shoppers are really eager for unique products and experiences, making brands ramp up their VIC (very important client) strategies. In 2022, millennials (Generation Y) and Gen Z were responsible for all the growth in the market.

For Gen Z, luxury isn’t just about the product; it’s all about the whole experience that goes along with it. They want to feel like they’re part of an exclusive club when they buy luxury goods. That’s why personalization and customization are becoming super important for luxury brands targeting this group.

Another big thing for luxury brands going after Gen Z is providing unique and experiential products and services. Gen Z tends to value experiences more than material stuff, so luxury brands that can offer something special will definitely catch their eye. This could mean exclusive events or cool collaborations with artists and designers.

The fact is, the top 20 luxury brands have seen a significant increase in Media Impact Value since the COVID-19 pandemic, averaging a 69% growth in MIV in just three years. Right now, millennials and Gen Z are driving 85% of global luxury sales growth. By 2026, these two groups will make up more than 60% of luxury spending, up from 39% in 2019.

Young consumers love luxury

Luxury audiences are younger than we used to think. Millennials and Gen Z are already big players in the luxury market and are only going to become more important in the future. Millennials are growing up, starting families, and climbing the career ladder, while Gen Z is becoming more independent. These groups have different tastes and expectations when it comes to luxury.

While 29 percent of Gen Z is only ready to spend less than 5 percent of their annual income on luxury stuff, a fifth of them are willing to splurge a bit more, paying over 16 percent of their income—just like the older crowd aged 55 and up.

The spending power of Gen Z and the even younger Generation Alpha is expected to increase three times faster than other generations by 2030, making up about a third of the market. This shows that they have a smarter approach to luxury, with Gen Z starting to buy luxury items about three to five years earlier, than millennials did (around 15 instead of 18-20); Gen Alpha is likely to follow suit.

By 2030, younger generations (Generations Y, Z, and Alpha) will dominate luxury purchases, making up a whopping 80% of global sales. In terms of regions, new markets like India and emerging Southeast Asian and African countries with large young populations have a lot of potential, as long as their luxury shopping infrastructure can catch up quickly. Among these rising stars, India is particularly impressive; its luxury market could grow to 3.5 times its current size by 2030.

Who spends the most on luxury? Break it down by different regions

The global ranking for luxury sales by region shifted in 2022, as the Americas climbed back to the top spot for personal luxury goods sales.

The personal luxury goods market hit around €113 billion in the Americas, marking a 25% increase from 2021.

Latin America saw solid growth, especially in Mexico and Brazil.

Meanwhile, Asia jumped by 43% when you exclude mainland China and Japan, thanks to the booming performance in Thailand and other Southeast Asian countries. South Korea also had a fantastic year, getting closer to Japan in market size.

In Europe, consumption was really strong, with about two-thirds of the increase coming from more transactions and the other third from bigger average transaction sizes, according to Global Blue data. Italy and France were the standout performers in 2022, followed by Turkey, the UK, and Spain, while Germany took a bit of a hit.

Their purchase channels

As digital natives, online shopping is set to outpace all other luxury sales channels in 2023 for the younger crowd, with online sales for personal luxury goods expected to reach 33% by 2030, thanks to dedicated mono-brand online stores and new digital opportunities. For consumers in Mainland China, the top shopping spots are major e-commerce platforms, while people in other countries prefer official brand channels. Over the next few years, we’ll see the lines blur even more between mono-brand shops and e-commerce, pushing brands to adopt an “omnichannel 3.0” strategy, all powered by new tech.

By 2030, online stores should become the leading channel for luxury purchases with an estimated 32%–34% market share, followed by mono-brand stores (30%–32% market share).

Their expectations and motivations

The main motivation to buy luxury items is to obtain better quality items. As the luxury market grows, so too does the appetite for experiential luxury; a category that goes beyond ‘standard’ ideas of luxury and seeks to create rich, dynamic, and immersive experiences that evoke the senses and delight them on multiple levels. We'll take the Chinese market as an example to interpret it.

According to KPMG's report, luxury consumers are divided into 5 main clusters. Their characteristics and populations are summarized as follows:

We can figure out that Gen Z and millennial consumers fall into the first three clusters.

Going Global

This group of consumers is often found in areas that are just starting to urbanize, especially in smaller cities. They've seen a boost in their buying power and are more willing to spend, but their limited connection to the outside world makes their view of brands pretty narrow. Without really getting to know a brand's history and product designs, they tend to place more importance on the brand's name and where it comes from. This has led them to think that foreign brands and products are better, and that buying imported goods is a way to show off a high-quality lifestyle. Consumers are more likely to believe that just the name of a foreign brand is enough to show they can afford those things.

Look at me

This group is mostly made up of 25-34-year-olds, aka millennials. For them, flashy luxury clothing and accessories are a way to show off their status and establish where they stand in society. They often link their social progress, like getting a job promotion or a pay raise, to spending more on luxury items.

Fitting in

This cluster highlights a lot of mature consumers in the younger crowd. They define a quality lifestyle through how they shop. They often refresh their wardrobes or switch brands to show off their values, beliefs, attitudes, and successes. What really motivates these changes in buying habits is the desire to fit in with their community through what they choose to consume. They keep a close eye on the trends and preferences around them. People in this group like to share their experiences on social media to boost their status among friends and family.

Digitalization's influence

Gen Z is a generation that’s grown up with digital tech, unlike the ones before them. They're using digital channels more and more to connect with luxury brands. Take the Chinese Mainland consumers, for example. Folks in Tier 1 and Tier 2 cities almost entirely rely on e-commerce for their luxury buys, hitting around 80%. In Hong Kong, that number is about 55%, which shows they’re a bit behind Mainland consumers when it comes to jumping on the online shopping trend.

Moreover, people are really getting into luxury items with digital features. The survey found that 18% of respondents said they'd change their shopping habits if brands interacted with them more through digital channels. Another 23% would be open to changing their habits if brands started using innovative tech like metaverse, NFTs, AI, and VR/AR.

New types of activities, often powered by technology, may also spark an additional €60 billion to €120 billion in sales by 2030, from sources such as metaverse and brand-related media content.

Brands are stepping up their game to keep up with shifting consumer tastes by embracing the latest digital tech in how they market and sell products. A luxury executive shared that augmented reality (AR) and virtual reality (VR) are awesome tools for both the inside and outside of luxury brands. "For instance, it lets us check out a product before buying it, without having to go to a showroom." Retailers are also pretty excited about the chances that Web 3.0 presents to create new value and rethink the customer experience. "Setting up specially-designed virtual experiences – whether it's VVIP boutiques or unique events – is going to become the norm and serve as a nice addition to in-person (IRL) customer connections.

Luxury brands’ actions and strategies

Sustainability

Some brands are leading the charge with a completely sustainable approach, like Stella McCartney, which has a sustainable supply chain and a commitment to vegan materials. Fashion labels like The People Tree and Everlane are upping the ante by giving consumers the chance to meet the makers of their clothes or take virtual tours of their factories. This really highlights that these pieces are crafted by local artisans, making them authentic and unique—this is what "social luxury" is all about.

Experimental

Brands have started to push more 'pop-up' and 'studio spaces' to showcase their brand in a different way. Dior invested in pop-up boutiques at choice beaches.

Personalization and customization

Creating personalized online experiences where customers can engrave, craft, or design their own products or experiences can work in a lot of different ways and is usually a hit.

If you require any assistance with marketing strategy (online or offline), feel free to contact us. At W&W Trading&Consulting, we use creativity, channels, and market insights to help brands achieve sustainable growth efficiently.

Reference

The future of luxury and fashion brands depends on Gen Z: Here's what they want

Millennials

The luxury market isn't what it used to be – here's why

How experiential luxury is emerging to meet the expectations of wealthy consumers in a post-pandemic world

Inside The Luxury Fashion Industry's Big Sustainability Push