Gen-Z's Outlook on Luxury
With another generation stepping into increased buying power, brands must figure out how to bring them into their respective brand universes.
The oldest Gen-Zers are already in their late 20’s (28 is the cutoff). Even though the youngest members of this generation are 13, some brands have found themselves scrambling to figure out the best way to entice them into buying their products. Tiffany’s is a prime example of a company that has tried and fumbled luring in Millennials and now they’ll have to keep trying with them and the next wave of shoppers. Younger customers are key to offset any declining spend by baby boomers going into retirement and the luxury market softening globally.
Gen-Z currently has a spending power of $360B in the U.S. alone and is expected to make up roughly 25% or more of luxury spending within the next five years.12 Companies need to look at multiple aspects of their go-to-market strategy in order to get these consumers excited. For example, this generation cares deeply about social justice and sustainability and by and large want to spend their money on brands that are aligned with their views. This level of transparency should be viewed as mission critical in order to get full buy-in. These aren’t foolproof exercises but they will allow for a higher chance at customer acquisition and retention.
Pricing
If luxury shoppers are experiencing price fatigue overall, the youngest segment that can afford these products are feeling it as well. A weakening economy in certain countries isn’t helping either. America’s job market is still challenging, especially for those earlier in their career, and thus they might be forgoing these high-priced items for a while. China is experiencing a youth unemployment rate of 20%, a record high, and luxury clothing isn’t of great importance right now.3 There’s a trend of getting out of the rat race and prioritizing quality of life while pursuing flexible jobs in the gig economy to make ends meet. This is worrisome for a lot of brands as China is one of they key markets in Asia where they’ve historically been able to depend on for revenue. Very similar to the U.S., the U.K. is struggling with inflation and high cost of living and student debt, limiting their spending power as well. We’ve already seen brands begin to reintroduce diffusion lines (items and collections at a considerably lower price point) so that might be a mainstay industry strategy as various geographies grapple with these macroeconomic issues.
Digital
This is the true generation of digital natives. They’ve seen innovation for as long as they can remember and now expect a certain level of technical aptitude when shopping online. Discovery has always been important but brands will need to look into AI solutions in order to decrease the amount of time customers are spending looking through a vast catalog without finding what they’re looking for (or pieces and accessories they weren’t familiar with but take a liking to). Prada and Louis Vuitton are using AI chatbots that utilize customer data and preferences to provide recommendations and a distinct shopping experience. Several startups have entered the market to help customers digitally try on different pieces that help them assess if the items they’re considering will have the fit they’re looking for. Chanel, Balmain, and Hugo Boss are just a small subset of companies that have implemented this software for their customers. For luxury houses who haven’t been through a major digital transformation in a while or haven’t embedded the “always on” level of forward thinking for internal and external technology, you’re at risk of not even being in the conversation.
Experiences
One bright spot is that Gen-Z prioritizes experiences from brands and plenty of players in the luxury market are already doing that. Restaurants inside of or next to their flagships, fun parties for grand opening for new locations, partnering with sexy hotels and adding to the ongoing “resort core” apparel trend, etc. There’s no shortage of ways to be memorable and the more innovative an experiential event is, the further it will go from an awareness standpoint. The key is to remember that there must be a strong alignment between the activation and the brand narrative. Giorgio Armani and Kith are doing an activation in the Hampton’s during this 4th of July weekend because their previous partnership was so successful and it allows Kith to build upon their already released Hampton’s-branded apparel. Valentino and Burberry both created listening experiences with high quality audio equipment to blend fashion and music. Will this cost more if you don’t shift spend from other areas? Yes. Will it be worth it for your brand in the long run? Absolutely.
Brands around the world are clamoring to find other sources of growth by segment and geo and already have their sights on younger populations, but it will be critical to get a lot of things right in order to see the ROI and stay relevant.
BBC; The picky buying habits of Gen Z consumers
Bain & Co; Long Live Luxury: Converge to Expand through Turbulence
Jing Daily; Why China’s youth are over the rat race