INTERVIEW WITH DR ANDRÉ GÄRISCH – HORIZONT
1. What’s the market for luxury goods like right now – and what reasons do you see for the current trend?
Rupert Wild: Thanks to the favourable economic situation, the luxury market is still booming in Germany and experts are expecting its good, sound development to continue. In a study of the German luxury market, the analysts at Ernst & Young anticipate an increase from an estimated €65 billion in 2018 to a total volume of €88.7 billion by 2025.This steady growth of 4.5% is more than double the 2.3% at which the global market is expected to develop. The Boston Consulting Group confirms this development in a study produced in collaboration with Italian luxury association Altagamma. According to its findings, the signs for major international luxury groups like LVMH, Kering or Richemont are still pointing to growth. And brands like Gucci and Louis Vuitton keep setting new sales records and announcing increased profits.
Millennials and Generation Z are playing a crucial role in the upwards trend. They’re generally regarded as a very demanding, high-income target group that embraces consumerism. At the same time, they’re digital natives – which means they’re better informed and connected than any generation before them or at least have the possibility to access virtually unlimited consumer-relevant information. By 2050, experts anticipate that 50% of those who buy luxury products will be part of the millennials generation.
However, the favourable parameters and promising forecasts for the luxury segment are being overshadowed by some rather unpredictable and gloomy clouds right now: increasing protectionism, trade wars that could well escalate and “punitive tariffs”. Some American brands, for instance, are having a hard time reaching consumers in China the way they usually do because of increased taxes and customs duties.
2. At what point is a luxury item actually considered a luxury? Are there any standardised criteria that are applied by market researchers and analysts?
Luxury defies unequivocal definition; there aren’t any ISO standards that can be used to categorise it and distinguish it from “ordinary” consumer goods – that’s not how it works. But there are certain hallmarks all the same, like the special, outstanding quality of the materials used (like fabrics, precious metals or gemstones) and the often artisanal quality of the workmanship (“handmade”, “customised”). On top of that, the availability of luxury goods is deliberately limited and they’re often associated with a unique place, a special experience or a prominent personality. So when it comes to all the different things that can come together under the luxury label, there’s obviously a lot of scope for interpretation. As Coco Chanel once said, “Luxury is not the opposite of poverty, it is the opposite of vulgarity.” But as interesting as that might sound, it doesn’t really help with the search for a definition.
So let’s look at it from a different angle: despite all the fantasies about growth in prospering markets, responsible brand management always means ensuring that the availability of luxury products is limited. Back in the 1970s, Gucci – the favourite brand of Hollywood icons like Grace Kelly and Deborah Kerr – wanted to boost its growth by making the brand available on the mass market. But it wasn’t long before Gucci’s allure ended up in the bargain basement and faded. Fortunately, Tom Ford managed to turn things round in the nick of time and steered the brand back into luxury customers’ favour.
Three years ago, Gucci’s current CEO Marco Bizzarri drastically rejuvenated the collection. The once classic design of the products is becoming increasingly colourful and cheeky – it’s a lot more emotional. Ensuring the brand has a strong social media presence is an important part of that – and there’s been a 70% increase in the number of Gucci followers on Instagram. That’s having an impact on sales too, which have grown from around €4 billion to €6 billion in recent years.
3. Which categories of luxury goods are particularly popular with consumers right now and why?
Bags, shoes, jewellery and luggage are still the classic luxury products – they’re always in demand as long as the story associated with them is right. But nowadays, in the age of globalisation, digitalisation, social media and fast fashion, it’s increasingly a question of which language has to be spoken in order to fascinate and involve an international clientele long-term. The trendy skater and hip-hop brand Supreme is a prime example: it’s been embarking on spectacular collaborations with the likes of luggage maker Rimowa and Louis Vuitton recently. Then there’s the hip streetwear label Off-White, which cooperates extensively with companies like Calvin Klein, sunglasses brand Linda Farrow and designer shoes label Nicholas Kirkwood. There’s no need to worry that an alliance between two very different brands will result in a levelling down as long as you realise that merely being hip isn’t what makes the difference. It’s still “quality and intensity” that give a luxury product its soul. Ownership alone doesn’t make anybody happy. It takes an emotional link with the individual’s own personality and a smart, matching lifestyle to achieve that. In other words: you can do all sorts of things as long as the quality is right. And that doesn’t just mean the materials; it encompasses workmanship, service and customer relationships too, as well as customer and brand communications.
4. What do you think the outlook is like – how will the market for luxury goods develop in 2019 and beyond?
As I said at the beginning, the forecasts for the luxury goods market are definitely grounds for optimism. However, that doesn’t mean we can take the potential growth for granted. At the end of the day, it’s always the customers and their attitudes, preferences and expectations of a desirable and liveable lifestyle who decide whether luxury brands succeed or fail. At the same time, the online and social media ecosystems are increasingly determining the pace and technology of brand communications – especially in the case of millennial target groups. With its ever-faster (and potentially shorter) half lives, it’s an environment where consumers identify with the hip products of the moment and the aspirations they generate.
It will be crucial for luxury brands not to disconnect from their customers’ lifeworlds. It’s vital for us to make our children understand that there's more to alligators than handbags and more to life than the pursuit of an entrenched ideal of beauty and youth. And that a real moment can be far more valuable than the Insta story that results from it. That’s why, more than ever before, it’s the story and its authenticity that count. Customers have to be able to see themselves in the story a brand tells and want to be part of that story. Ultimately, the “secret” of their sales success lies in the dreams that luxury brands are so good at inspiring. Or to put it another way: speeding up isn’t everything. Healthy growth always depends on both hearts and minds. And that’s something to build on. Not just when it comes to regular customers, but in order to attract hopeful new customers from China and the millennial generation as well.