The future and potential of the luxury market

Like virtually every market, the luxury market also fell with the pandemic. But it continues to show an enormous degree of resilience. In such a way, Bain & Company predicts that the luxury market will grow from 10 to 19% in 2021.

This market covers different types of products: clothing, watches, cars, yachts, travel, hotels, restaurants, wines, jewelry, and even rare whiskey. Therefore, it is a market with a lot of potential, both for its diversity and for its audience eager to spend their money to have something truly unique and authentic.

But the luxury market is changing, and this is happening for two main reasons: the pandemic that is leading to market digitization, and the demands of its customers, who are increasingly aware of ethical and environmental issues.

In this article we will start by looking at the data that demonstrate the increasingly present role of luxury e-commerce. And let’s look to the future, to what we can expect from it.

Luxury e-commerce: your online sales numbers

In 2020, the luxury market doubled its sales on online channels when compared to 2019. The data is also from Bain & Company. Last year, 23% of sales were made through digital channels. Online sales reached €49 billion in 2020.

If these numbers summarize the sales made through e-commerce, there is another number that demonstrates the impact of digital channels on the luxury market. 85% of transactions carried out in this market were directly influenced by digital channels and 40% were initiated through these channels.

In Portugal, we have an excellent example of the impact of digital channels on the luxury market. Farfetch was the first Portuguese startup to receive the title of unicorn – a startup valued at more than 1 billion dollars. In 2018 it even entered the New York Stock Exchange. And in 2020, even during the pandemic, its revenues grew by 46%. Farfetch’s core business? Selling luxury fashion brands online.

Technologies that are impacting the online luxury market

1# Augmented reality: allows the user to simulate how a luxury item or product fits him or in his home.

2# Live streams: the presentation of new products becomes an experience that is also digital and exclusive. In Portugal, BMW presented the new BMW iX3 through an online event with names such as Rui Unas and Carolina Deslandes.

3# Virtual tours: simulating the experience of visiting a real physical store.

4# Gamification: makes the experience of using and buying a product more interactive; for example, the luxury brand Ermenegildo Zegna created a “gamification” experience through TaoBao Life to make the online  purchase of its products more interactive.

If we look at China, one of the main markets in the luxury segment, we find Tmall Luxury Pavilion. This e-commerce platform from the Alibaba group already explores some of the technologies mentioned above. So much so that Farfetch itself also has its digital store within this platform.

The future of the luxury market: between sustainability, ethics, and authenticity

One of the great challenges of the luxury market is to combine sustainability and ethics with authenticity. While the first two terms define the requirements for the future, the second defines what has always made your product unique.

Let’s take the example of a brand that develops leather items. Its raw material comes into direct conflict with sustainability and ethics. The solution? Develop alternative materials to leather.

That’s what some startups are already doing, like Mylo. This American startup has developed a new type of material that works just like leather. So much so that international giants like Kering – owner of luxury brands like Gucci, Balenciaga, Bottega Veneta – have invested in the startup to use this new, more sustainable leather.

But this is where another big challenge arises: authenticity. By using an alternative material, brands jeopardize the quality or qualitative and authentic perception of their new products. What may initially be seen as a sustainable measure can quickly turn into a “shooting yourself in the foot” situation. It is therefore extremely important that the luxury market adapts to the future while maintaining its authenticity.

And if we only look at the luxury fashion market, two more trends emerge:

– genderless collections.

– capsule collections.

Genderless collections meet today’s needs and promote authenticity and freedom, but this time, from the brand user himself. Capsule collections, on the other hand, are an excellent tool to create more exclusive, limited, and authentic pieces, increasing sales potential.

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