Trends Analysis: Understanding the Online Luxury Consumer
When consumers think of a luxury shopping experience, they’ll likely picture a private dressing room, a glass of champagne and their own personal stylist. It’s an image rooted in traditional (and physical) retail.
The next generation of luxury shoppers won’t have the same mental picture, however.
That’s because luxury shopping is moving online. More and more brands are opening their own online stores or partnering with third-parties, and they are doing it just in time to connect with the sector’s new luxury consumer.
Luxury Brands Are Finally Moving Online With the Help of Platforms
Luxury brands have been slow to move online, and many still don’t have great online shops. That’s because most brands simply don’t have the in-house talent needed to execute an amazing eCommerce experience.
Denise Dahlhoff, Director of Research at the Wharton School of the University of Pennsylvania, says many luxury brands instead have chosen to partner with digital retailers such as Yoox Net-A-Porter, Farfetch and MatchesFashion. Farfetch, for example, is a partner to more than 500 independent boutiques and more than 200 brands. In return, Farfetch handles everything from customer service to global delivery and returns.
Some traditional luxury brands have successfully made the transition online, however. Having seen the success of multi-brand retail shops, luxury company LVMH — owner of brands like Louis Vuitton and Dior — launched its own online retail store in 2017, Luxe Digital’s Samantha Woodworth notes. The shop, 24 Sèvres, sells owned brands alongside competitor brands like Prada and Gucci.
While luxury brands with generations-old names have had to navigate eCommerce’s learning curves, newer luxury brands have been digital-first from the start. Linjer is one such brand. The bag, watch and jewellery brand even launched through an online crowdfunding campaign, where the company raised $190,000 to produce its first product.
Linjer’s model of luxury translates to the online experience pretty seamlessly. The brand has managed to capture the sense of exclusivity and must-have appeal that comes with traditional luxury brands. While it can’t have people lining up around the block for a product release, it can boast a huge email waitlist for new products. When the company launched its first handbag, for instance, almost 3,000 people signed up to the waitlist and placed $600,000 worth of pre-orders, Fashionista’s Maria Bobila reports.
Just in Time to Meet HENRY, the New Luxury Consumer
Luxury brands have their eyes set on a new, younger class of consumers, Patrizia Arienti writes in Deloitte’s Global Powers of Luxury Goods 2019. These consumers are HENRYs, or “High Earners, Not Rich Yet.”
HENRYs have significant income — between $100,000 and $250,000 — but with investable assets of less than $1 million. As such, they are likely to be extremely wealthy in the future. As such, luxury brands want to start building long-term relationships with these consumers now.
To do so, however, luxury brands must become more tech-focused. That’s because millennial HENRYs, in particular, are “heavily influenced by modern technology” and use “social media to form their buying decisions” Arienti writes.
Young consumers are having such a significant impact on the luxury market that brands can’t ignore them, report Bain’s Claudia D’Arpizio, Federica Levato and Joëlle de Montgolfier. “Generations Y and Z accounted for 47% of luxury consumers in 2018 and for 33% of luxury purchases. However, they contributed virtually all of the market’s growth, compared with 85% in 2017.”
GlobalWebIndex’s Chase Buckle notes that male millennials are some of the biggest spenders. In a survey of U.S. and U.K. consumers, GlobalWebIndex found that 25-44 year olds account for two-thirds of consumers who regularly buy luxury goods for themselves. Two-thirds of that segment are males.
These Millennials Are Redefining What Luxury Means
The emergence of millennial HENRYs is doing more than giving older generations a new pejorative to throw around. It’s also reshaping what “luxury” means to many consumers, says Mindshare North America’s Mark Potts.
In a survey of 2,000 U.S. consumers, the Mindshare Insights team found that a slight majority of U.S. millennials believe big luxury brands have lost their personal feel. In fact, exactly half of respondents preferred shopping with lesser-known luxury brands because of the potential “social kudos” that come with it.
Millennial HENRYs are more empowered, educated and informed than any previous generation, market researcher Pamela N. Danziger says. “Increasingly traditional luxury goods are not making the cut, as HENRYs opt for lower-priced but still premium options from brands like Everlane, Gilt, Outnet.com (the outlet site for full-priced Net-a-Porter), membership sites like RuLaLa, as well as Neiman Marcus’ Last Call, Nordstrom’s Rack and Saks Off 5th Avenue.”
It’s not brand names that millennial HENRYs care about, notes Red Peak Youth’s Megan Hartman. They want high-quality, authentic products, regardless of the brand.
This means luxury brands need to rethink how they can connect with such consumers. “We’re seeing that even high-net-worth millennials who can afford luxury brands are still swayed by brands like Zara and TopShop, which are able to cater to trends more quickly,” Hartman writes. “Henrys are the same way; they will be just as willing to shop at Zara as they are to buy from luxury brands.”
Digital Personalization Is Key to Attracting the Luxury Customer
If luxury brands want to stay relevant in an online world, it’s crucial that they personalize marketing efforts, entrepreneur Florine Eppe Beauloye writes. Tailored customer service is an essential part of the luxury experience, and brands need to be able to recreate this online.
Personalization is “an absolute requirement” for modern brands, says Carla Buzasi at trend-forecasting company WGSN. There’s a personal touch missing when almost all shopping interactions happen through a screen. Digital personalization is what re-creates that sense of a personal touch — all the while allowing brands to build new, stronger customer relationships.
Tech like artificial intelligence is powering the luxury market’s shift to online personalization, says Rotate’s Chris Harris. AI allows brands to make timely and accurate product suggestions. Meanwhile, chatbots help luxury brands deliver the dedicated one-to-one service that has been such an important part of the in-store experience — but at scale. Even traditional brands like Estée Lauder and LVMH have had success using chatbots to boost online sales.
Ultra-personalization is where Farfetch founder José Neves is placing his bets. Digital-first companies already know so much about consumers and can provide highly personalized experiences. Offline retailers don’t have all of that intel. Therefore, retailers who don’t catch up won’t last long, Neves says.
“That’s why we are focusing our efforts on an Augmented Retail vision, our Store of the Future — to help the world’s greatest luxury brands and retailers to deliver incredible customer experiences across all touchpoints — monobrand, multibrand, online and offline.”
The luxury market was once the preserve of well-heeled and well-established brands. Not anymore. Now, new brands and old are competing in the same digital space and trying to forge long-term relationships with the new luxury consumer.