Charlotte Willcocks, Head of Strategy at Impero, takes a look at how luxury and premium brands have evolved since the COVID-19 pandemic.

Consumer confidence is at the lowest rate since May 2020. But if history has taught us anything, what goes down quickly goes up as demonstrated by the first months of 2023, where confidence jumped 2.4 points. However, this newfound optimisation is yet to filter down through all consumer spending which is set to contract by 1.6% year on year. That said, one sector is continuing to prove itself as not only resilient but recession-proof – luxury, which is set to grow by 3–8% over the next year.

This struck us as interesting as we’ve been tracking the top 50 luxury brands in the world since 2016. We’ve seen luxury brands dictate new behaviours that later filter down to mass consumer behaviour. This led to us to thinking about what does life after new luxury look like, and what are the opportunities for premium brands to future proof? We conducted a nationally representative research study of 1,000 consumers from across the UK to find out.

The biggest consumer shift driving consistent luxury spending is the upswing in hedonistic consumer spending. This is compounded by the overall lowering of consumer esteem, which has resulted in a continuation of the emotional spending we saw during COVID-19, as people try to factor normality though purchases when faced with external uncertainty. Finally, many of the new emergent behaviours observed during COVID look like they’re here to stay, such as the increased home dominance when it comes to eating in, instead of out, hosting in the home instead of venturing out to a restaurant, and home workouts still holding strength against the gym.

Diving into the data further, the audience driving these spending behaviours are Gen Z and beyond. They’re the audience set to be the biggest buyers of luxury goods by 2030, and also the most likely to trade down in quality in other categories. With their high spending power and equally high disloyalty to brands, Gen Z are a critical audience for premium brands to engage now.

Who are Gen Z and what makes them different to the generations before them when it comes to premium purchases?

When shopping for premium brands, Gen Z view immediate identifiable benefits as a key driver. If these benefits are not clear, consumers will often choose the cheapest option. This is also the generation that values cultural credibility over assumed prestige, meaning that even the most established brands need to be consistently innovating and reinventing. Finally, and most notably, their motivations for purchase have shifted from external validation and status to personal brand and internal pride, with self-expression topping the list.

New audience behaviours aren’t the only thing that premium brands are contending with, culturally there are also threats from all angles putting pressure on brands to stay agile. This includes downward pressure from the ‘massification’ of luxury brands tempting consumers to trade up, to dupe culture creating a hostile price-first environment, and increased cutbacks in consumer non-essential spending.

A new landscape needs new rules of play, our research has informed four new rules of premiumisation for brands to adopt to help navigate this ever-changing landscape.

The first rule is the ability to build new expressions of desire. The most successful premium brands are able to attach and elevate meaning where there wasn’t originally any, from Patch changing plant ownership to plant parenthood or Aesop elevating the simple act of handwashing into a Scandi lifestyle experience. These brands use imagination and originality to design new rituals and occasions to reach undiscovered audiences.

Then there’s the way this new audience derives value from brands, our research suggested ‘brand values’ were the key driver beyond price and quality. However, if this were a true reflection, it doesn’t explain how brands such as AU Vodka, a brand whose foundation sits firmly in excess and extreme shows of flex, grew from $1m to $54m in the last two years. What these brands understand is the importance of personal brand values over external ‘saving the world’ values.

The power to connect also sits within the walls of the brand, although brand evolutions of recent years have been met with a deluge of negative hot takes on Twitter. Consumers increasingly allow brands to evolve their heritage and attach new meaning and codes. Successful premium brands will unlock new meaning by reimagining their brand.

The final rule in the new premiumisation playbook is functional dominance, the true battle lines between premium and luxury lie within ‘elevated essentialism’. This was reflected in our research, which found that the top three categories consumers are trading up in are personal care, fresh food and grocery.

Although the marketing landscape is volatile, this new playbook will help brands entering the premiumisation market, by taking cues from luxury brands and viewing the current downswing as posing a huge opportunity for the brighter days ahead.