Overall growth is likely to remain moderate, expanding at an annual rate of between 4% and 6% through 2030, a slower pace than the single-digit increases of previous periods.
Emotional connection is the main driver of luxury brands' appeal in both the United States and China, above craftsmanship, heritage and logo recognition, The State of Fashion report published by BoF and McKinsey found. Luxury customers in both countries are increasingly skeptical of artificial scarcity: in China, personalized service is the main driver of exclusivity, while in the United States, early access and loyalty rewards trump waiting lists.
China and the United States will drive much of the sector's growth.
Valued at around $130 billion, the United States is the world's largest luxury market and is projected to grow up to 5 percent annually through 2030.
China's $60 billion high-end market is expected to rebound and outperform other major regions, expanding by up to 6 percent a year.
However, reigniting growth will not be easy for many brands. Since emerging from the pandemic and the easing of the spending frenzy that followed, luxury customers have realigned their priorities. They have become more demanding about the brands and products they are willing to buy.
Growth in experiences such as travel is outpacing product purchases, while inflation has diminished appetite for fashion, including handbags. Price increases by major fashion brands during boom times, often without corresponding product innovation, have put off customers across the spectrum, particularly at the aspirational level, according to an article on the report by BoF Insights, BoF's in-house consultancy.
As the post-pandemic euphoria began to fade, brands sought to insulate their businesses from choppy trading conditions by focusing attention on ultra-wealthy customers. But by focusing on customers most immune to economic headwinds, many brands lost track of lower-tier customers and didn't give them a reason to visit stores. These customers, a critical base for the sector, ended up leaving in droves, the report notes.
For customers in both China and the United States, emotional connection has become the main driver of luxury purchases. As customers become more selective, they are more attracted to brands that resonate personally and reflect their tastes and values. Meanwhile, brand heritage and history play a less important role.
While customers in China look to brands more as a means of external expression, their American counterparts are more interested in self-reward and lean more toward brands that share their values.
In the United States, 68 percent of luxury customers say challenger brands better reflect who they are, outperforming legacy houses; In China, legacy brands, both global and local, continue to carry greater emotional weight: 69 percent of customers say they better reflect their identity.
Luxury customers in both markets are increasingly skeptical of artificial scarcity: in China, personalized service has become the main driver of exclusivity, while in the United States, early access and loyalty rewards trump waiting lists.
Digging deeper into the shopping experience, physical stores play an important role in motivating all types of customers in China, especially at the entry level, highlighting the central role of retail when it comes to reaching aspirational customers.
For American customers, poor retail experiences are proving to be a big problem, with aggressive sales tactics and long lines turning off customers, highlighting a critical area for improvement.
The report found increasing use of artificial intelligence (AI) and resale channels to purchase luxury products. More U.S. customers look to AI for inspiration than in China, where first-time customers are more engaged with AI throughout the entire buying process, from discovery to purchase decision.
Second-hand channels are also playing an increasingly important role, especially for higher-spending customers in the United States, motivating shoppers with both the “thrill of the hunt” and bargains, the report added.
Fiber2Fashion News Desk (DS)
