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Number of luxury consumers to reach 440 million by 2020: BCG

By
February 3, 2014

Louis Vuitton in Shanghai

Luxury consumption will grow organically over the next 10 years with overall spending growing from approximately $985.5 billion today to almost $1.2 trillion in 2020, according to a new report.

Consumers will be the main driving force of this growth, with the number of luxury consumers rising from 380 million today to 440 million by 2020. This presents an opportunity for luxury brands if they know how to market to core luxury consumers as well as new consumers, since they require diversified strategies.

“The luxury sector will continue growing with an additional $202.5 billion personal luxury growth by 2020,” said Antonio Achille, partner and managing director at Boston Consulting Group, Milan, Italy.

“Two-thirds of the next-decade growth will be organic, with today’s markets and today’s stores,” he said. “This is very different from what happened in the last decade, where sector growth was mostly achieved by opening new stores, being it’s in new emerging geographies, chiefly China, but also Russia and Brazil, or adding stores in traditional luxury markets, such as Europe, the U.S. and Japan.

“Luxury growth will be again mostly driven by the top of the pyramid, by the true luxury consumer.”

Altagamma collaborated with Boston Consulting Group on its True-Luxury Global Consumer Insight report.

The report gives the results of surveys of approximately 10,000 core luxury consumers, whose yearly spend on luxury items was at least $4,000 and averaged at $40,500, and 30,000 aspirational and prospective luxury consumers, whose spend on luxury was less than $2,700.

The study looked at the core consumers to evaluate trends and global segments, and researched how aspirational consumers could be turned into core consumers as well as to estimate the prospective future core luxury market.

On the rise
Core luxury consumers in the U.S. and China will lead the growth over the next decade, with the U.S. core luxury consumers increasing their spending by $47 billion. By 2020 the core luxury consumers in the U.S. will grow by 1.8 million to 10.8 million.

China and the U.S. are also at the forefront of aspirational luxury consumer spending rise, with Chinese aspirational consumers spending growing by $35 billion.

The study identified approximately 1 million core luxury consumers who are disaffected, and who are expected to decrease their spend on luxury. These consumers are currently valued at $10.8 billion, and the amount of spend at stake is about $5.4 billion, or half of their total spend.

Quality is key
The majority of the core luxury consumers surveyed said that luxury to them is based on intrinsic values, like quality, exclusivity and craftsmanship, over external factors like brand visibility or how “cool” it is considered.


Map of consumers’ opinions of more than 100 luxury brands

Quality was the highest factor in determining luxury for almost all of the countries surveyed, with exclusivity mentioned by the second highest percentage of respondents. South Korea was the one exception, with more of those surveyed mentioning exclusivity, with quality second.

Brand visibility is currently a strong purchase driver, but is expected to decrease. Also fading as a reason to purchase is adornments, with consumers favoring simplicity.

Exclusivity is expected to grow as a purchase driver, but respondents said that 25 percent of brands are already losing their exclusivity or are at risk of losing it.

“Exclusivity is a core attribute that a brand and a product must have for core luxury consumers,” Mr. Achille said. “Brands need to recognize that there are several ways to lose exclusivity, some of which can be only partially controlled, such as fake copies, but others are in control of the brand, for instance, discounting too often, too intense use of licenses or poor distribution.

“Once exclusivity is lost the equation to rebuild it is very complex, takes time and there is no guaranteed success.”

Core luxury consumers surveyed said that they look at where a product is made. Emerging markets are the most sensitive to this, with 87 percent of the respondents in countries such as South Korea and China saying they care, compared to the average of 78 percent.

Of the consumers who said they looked at where a product is made, 44 percent said they considered Italy to have the best manufacturing for luxury. France followed with 17 percent.

Magazines continue to be a main source of influence, with 50 percent of core luxury consumers saying they have an impact on their purchase decision. Word of mouth came in second, influencing 44 percent, followed by store windows and brand Web sites.

Most luxury consumers are advocates for brands they like, with 72 percent speaking about a brand, with their key motivations being superior quality or design.

Specialized stores
Half of luxury spending happens outside of the consumer’s home country.

Emerging countries look to stores abroad for lower prices and a wider selection, while consumers in established markets say shopping is part of the travel experience and they have more time to shop while away.

When shopping abroad, consumers look for brands they are familiar with and which are known in their home country.

When those surveyed were asked where they mainly shop for luxury items, department stores and directly-operated stores topped the list for most countries. Duty-free stores ranked second in South Korea and Brazil ranked online first.

Luxury brands need to tailor their stores to individual countries and generations to see the best results, since luxury consumers are seeking different things in a shopping environment.

In mature markets, brands should opt for a smaller, intimate experience for the older generations and a large flagship for millennial consumers.

In emerging markets, the preference is larger stores for all ages, but the older generations are looking for more sales associate help. Consumers from these countries are also more likely to want an immersive digital presence in-store.


Burberry Beauty Box store with digital touch points 

The digital experience should also be tailored to different age groups. While respondents 51 and older say they use digital beyond purchasing to mostly research prices and products, younger generations are mostly using digital for other purposes such as social media, accessing brand content, interacting with the brand and following trends.

Using all of this information can help marketers reach consumers in the best way for their specific market segment and capture the projected growth in luxury spend.

“Word of mouth and advocacy are becoming a key way for core luxury consumer to select their favorite brands,” Mr. Achille said. “About 50 percent of core luxury consumers relay more on word of mouth rather than magazines or advertising.

“This calls for an omni-media strategy for brands that include several channels, of which some are the traditional ones, but include also new ones like community and social marketing.

“Also, it is important to manage brand advocate as true brand ambassadors, knowing that they can positively or less positively impact the brand equity.”

Final Take
Sarah Jones, editorial assistant on Luxury Daily, New York 

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Sarah Jones is editorial assistant on Luxury Daily, New York. Reach her at sarah@napean.com.

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