Luxury world evolves

NEW YORK: The "new world of luxury" is posing substantial challenges to companies in the premium goods sector, the Boston Consulting Group has argued.

"True luxury means different things to different people, but for most consumers the term connotes rarity, quality and refinement," it said in a report.

Such a definition applies to "traditional" high-end segments like watches and apparel.

However, an Ipsos survey of 7,496 adults in seven developed countries, coupled with BCG analysis, revealed "experiences" must be incorporated.

"In the eyes of most consumers, luxury also extends to alcohol and food, as well as to travel, hotels, spas, technology (for example, smartphones), and cars," BCG said.

This model values the luxury industry at €1tr ($1.3tr; £846bn), with premium automotive brands contributing €250bn, travel and hotels yielding €270bn, and watches and jewellery on €100bn, the same as technology.

Fashion and clothing, leather goods, and alcohol and food are all worth €50bn, cosmetics and fragrances generate €30bn and furniture delivers €40bn.

BCG's figures vastly better typical estimates in the €150bn to €180bn range, but while this offers opportunities, sizeable obstacles exist.

The downturn reduced "inconsiderate consumption" and "conspicuous consumption" has given way to "discreet connoisseurs".

A poll of 629 Americans found 50% thought luxury was "less important than two years ago", and a third held this view about demonstrating their status.

In contrast, a majority prioritised "family," "stability" and "saving", while over 40% emphasised "friends", "home", "ethics" and "locally grown products."

"Luxury consumers … are moving to a more introverted kind of consumption that involves family, friends and living well. In the new world of luxury, consumers are looking more to 'be' than to 'have,'" BCG said.

Further shifts include the surge of new media, premium manufacturers rolling out entry-level items and efforts by mass-market firms to "blur the lines between luxury and ordinary."

To assess the future landscape, BCG and Concept M analysed the habits of 150m luxury households - providing 90% of 2010 category expenditure - in Brazil, China, Europe, Japan, Russia and the US.

"Aspirational" residences made up 80% of the potential audience, with an annual income reaching €55,000 in the developed world and €18,000 in emerging markets, spending €400 a year on average.

This equates to around 30% of "traditional" industry revenue, concentrated on cosmetics and fragrances, taking 60%, and leather goods, hitting 20%.

The 25m rising middle class households have earnings of €110,000 in regions like the US and €35,000 in emerging nations, generally focusing on specific areas, as beauty, leather and fashion take 85% of their outlay.

BCG suggested the 6m "new money" residence, possessing around €725,000 in bankable assets, supply around €60bn, or a third, of luxury sales, spending consistently across categories.

The 1m "old money" households, making 7% of purchases and regarding exclusive products as reflecting their overall lifestyle, while the 600,000 "beyond money" community, on 5%, favour subtlety.

As women influence 80% of luxury acquisitions - be it by using shopping as a leisure pursuit or reward, emphasising the home or buying "the best" for their children - BCG said females constitute a key target.

Older demographics are another essential cohort, as the number of people aged 65 to 80 will grow by a factor of 1.5 in the US and Canada between 2008 and 2020.

In Japan, the 65-80 demographic will grow by a factor of 1.7.

Proving value, offering experiences, embracing new media, building brands, "refreshing" retail strategies and adopting corporate social responsibility should all be vital going forward, BCG concluded.

Data sourced from Boston Consulting Group; additional content by Warc staff, 6 December 2010

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