MILAN — Top-end luxury shoppers are expected to spend a total of 1.01 trillion euros, or $1.17 trillion at current exchange, by 2021 with experiential luxury forecast to grow more than personal luxury.
This data, as well as identifying consumers and their shopping habits, was a focus of the “Altagamma Consumer and Retail Insight” forum held in Milan on Thursday. The second edition of the True Luxury Global Consumer Insight headed by Boston Consulting Group and the third edition of the Altagamma Retail Evolution presented with Exane BNP Paribas were presented at the conference, aiming to shed light on consumer behavior. This has emerged as a thorny issue for several executives, including Prada’s Patrizio Bertelli and Millard “Mickey” Drexler 3rd, J. Crew’s chairman and chief executive officer, who admitted a struggle with the changing fashion landscape late last year.
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With over 40,000 interviews in more than 20 countries and a focus on 10,000 top luxury shoppers who spend a yearly average of 20,000 euros, or $23,200 at current exchange, the comprehensive “True Luxury Global Consumer Insight” study on high-end consumers found that they totaled 390 million globally and that in 2014 they spent 755 billion euros, or $875.8 billion. The number of consumers is expected to grow to 465 million by 2021. Personal luxury will grow 4.7 percent per year, driven by jewelry, watches and leather goods. Experiential luxury will grow 6.7 percent. Fifteen million top luxury consumers will lead the growth. Although they account for only 4 percent of the total, last year they spent 220 billion euros, or $255.2 billion.
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The yearly Altagamma Retail Evolution, which studied 12,500 points of sale, showed that luxury brands progressively morphed into retailers. Luca Solca, managing director, global luxury goods at Exane BNP Paribas, said “like-for-like growth and relative share performance go hand in hand. The critical point is sales per square foot.” As per the study, the analysis of the like-for-like performance must lead investments in retail. Over the past few years, Hermès and Richemont have shown the best performances, while Burberry, Salvatore Ferragamo and Moncler are the brands that have the most potential to develop in this sense. “Like- for-like is pivotal because it pushes return on investments. It becomes indispensable for leaders to pass from the opening of new stores to growth, especially in a moment when the demand is modest. The costs of rents grow and the Internet draws an increasingly bigger quantity of volumes,” explained Solca. “E-commerce integrated with physical retail seems to be the right way to proceed to increase the productivity of the physical space, return on investment and the potential of a public listing.” Solca also noted that luxury brands are accelerating their digital engagement. “Twenty-eight brands tracked have improved their digital experience by 8 percent in the last quarter in 2014. Gucci, Vuitton, Cartier and Tiffany are doing e-commerce even better than Burberry,” he said, adding that luxury brands “have put the foot on the brake on new stores. Prada and Hugo Boss are limiting openings, as competition is intensifying in some categories.” Mass fashion retailers and mid-tier specialist brands are pressuring diffusion designer lines, for example. Couture companies such as Dior, Chanel and Valentino have also gained market share in accessories, crowding the handbag market. Also, there are more new accessible luxury specialists such as Michael Kors, Kate Spade, Tory Burch, Furla and Longchamp, said Solca.
Armando Branchini, vice president of Italy’s luxury goods association Fondazione Altagamma, said that “the purchasing behavior of world consumers has become more complex and less foreseeable and that the total investment in retail is the most relevant investment made by luxury firms in the past 40 years.”
Simone Dominici, general director of Coin and Excelsior retail chains, said that if he headed a brand, he “would go and look for added value for consumers. Craftsmanship and quality may be part of brands, but they must be nourished. In any case, for consumers they are a given.” He contended that new ways to differentiate a label must be found, such as credible storytelling.
Antonio Achille, partner and managing director of The Boston Consulting Group, said that “consumer confidence in luxury and experiential luxury will pick up in 2015. Luxury consumers are expecting brighter shopping days, and top luxury will contribute to 40 percent of growth, he said.
Other findings included:
– 80 percent of consumers check the Made in Italy label as it’s the first preferred manufacturing country, followed by Germany for cars and Switzerland for watches.
– 25 percent of luxury brands risk losing exclusivity based on consumers’ statements as exclusivity is not taken for granted.
– Word of mouth is surpassing the power of magazines, led by social media and blogs, real engines of a two-way dialogue.
– The pure store is no longer the first channel for a sale so the shopping experience risks becoming obsolete. The store may pass from temple of desire to logistics terminal.
– Three out of four consumers expect omnichannel service, with integrated delivery service and same promotions and rewards expected when dealing with multiple channels.
– A brand’s Web site is the first option for online shoppers.
– Sustainability is more relevant in Europe and the U.S.
– The U.S. and the U.K. are becoming more legitimate as “made in” countries.
– Luxury shoppers prefer specialist brands.
Ferragamo ceo Michele Norsa said, “the true challenge is to conquer the new consumer in terms of geography and age, and bring them tools to communicate.” He concluded that “consumers of emerging markets are more important than new consumers in consolidated markets.”
Expectations about the European Central Bank governing council’s meeting later that day in Frankfurt were high at the Altagamma conference. Asked for a reaction after president Mario Draghi’s announcement of the purchase of 60 billion euros, or $69.4 billion, of public and private securities each month from March until the end of September 2016, Branchini said he had expected the decision, which was “only positive,” molded after similar interventions by the Federal Reserve as well as the Bank of England. “It’s a system to exit from the “stagdeflation,” or stagnation-deflation, a breather, and a way to fuel growth in Europe and avoid the danger of ongoing deflation.”
Responding to a question about prime minister Matteo Renzi’s “dream of a parity between the dollar and euro currencies” expressed to the Wall Street Journal in an interview a day earlier, Branchini noted that on Thursday, the exchange rate at 1.16, was not too far, but added that “this is Renzi’s dream as it is for many. However, you can’t manage exchange currencies as you wish. See, for example, what happened in Switzerland [with the de-pegging of the franc from the euro].”