Deloitte recently published a report on millennials and their attitudes and purchase motivations in the luxury market. Entitled “Bling it on: What makes a millennial spend more,” it examines a survey with over 1,000 millennials, aged 20-30 years, in the U.S., U.K., Italy and China who expressed an interest in luxury spending.
Many of the findings were not unexpected, such as their willingness to purchase luxury goods online and the influence of social media and brand websites as a source of information to propel their luxury purchases.
But one finding popped for me: American millennials trailed far behind the other markets in their purchases of high-end fashion or luxury goods. Over one-fourth of the American millennials report no luxury purchases of $500 or more in the last 12 months, whereas the survey average was only 16%.
This finding has significant implications for luxury brands marketing in America because consumers’ past purchase behavior is a good predictor of future behavior.
If 26% of millennials who are interested in luxury goods haven’t purchased any recently, which was reported by the Bain Luxury Study, it certainly doesn’t bode well for the future of luxury brands in the U.S., the world’s largest luxury market.
The U.S. also leads the world in the number of affluent consumers. Credit Suisse reports that there are 13.6 million American adults with a net worth above $1 million. That is over 40% of the world's millionaires and more than the next eight countries combined.
In Unity Marketing’s in-depth “Millennials on the Road to Affluence”study, which included both qualitative and quantitative research, we studied young people’s attitudes about luxury. Our qualitative sample was a select group of millennials having post-graduate educational levels and who are pursuing careers that will lead to high incomes, such as law, medicine and health, engineering, tech and business.
One of the respondents said “Luxury is nothing but a marketers’ label” which he said meant it was overpriced.
The millennials are nothing but smart shoppers who know how to use all the tools at their disposal to find the best value when shopping. While the Deloitte study shows millennials are most motivated in their purchases by quality, followed by uniqueness, the brand name, its ethics and image did not particularly motivate them when comparing a luxury versus a more affordable alternative.
Applying the descriptor “luxury” to a particular brand may well turn these young people off more than it turns them on when it comes to attracting their attention and getting them to buy.
What luxury brands are selling may not be what millennials are buying
It is a mistake to assume that the millennial generation will aspire to the same luxury as previous generations. This generation, thanks to the internet and how it has uncovered the "smoke and mirrors" on which the allure of luxury brands are based, are discovering they can acquire luxury-quality goods at significantly lower prices.
Status symbols as represented by luxury brands don’t have the same meaning for millennials. They still value status, but for them it is status defined by who they are and what they have achieved, not how much money they spent buying some overly-expensive luxury brand.
As a result, a gap is growing between what the customers believe luxury to be and what the industry thinks it is, as discovered in the most recent “State of Luxury” study conducted by Unity Marketing and Luxury Daily among 600 luxury industry executives.
The opportunity for renewed luxury industry growth lies in bridging that gap, as this luxury insider shared, “There is an opportunity for luxury brands to re-examine their roots and rethink their offerings and messaging to reflect what the consumer is looking for.”
Shifts in the demographics and mindset of today’s luxury consumers has brought about profound changes in the way they shop and buy and how luxury fits into their lifestyle.
Not to mention new competitors are fast and furiously emerging which are not bound by the traditions prevalent in the luxury industry, and which hamper established brands in this increasingly disrupted luxury market.
Luxury is a state of mind, not a brand or a price point. Millennials still want luxury, but luxury that is consistent with their personal values.
Here are some ideas for luxury brands to get back on track with the emerging millennial generation customers:
Out with “Old Luxury,” in with “New Luxury”
The traditional ideas about luxury as aspirational or a status symbol and which have been an important element in marketing and positioning many heritage luxury brands have taken on a negative taint in a cultural climate that demonizes the excesses of the rich and wealthy. Say the word “luxury” and negative, rather than positive images are evoked, like conspicuous consumption, indulgence, exclusivity, elitism, extravagance, status seeking and income inequality.
What’s more, other positive values that luxury brands have traditionally filled – quality, style, workmanship, design – are increasingly being satisfied by premium and lower-priced brands, or challenger brands as Deloitte describes them: "It is no accident that most successful challenger brands in the industry have their roots in digital and/or social media marketing aimed at millennial consumers."
This calls on luxury brands to downplay the negative connotations associated with luxury and play up the positive attributes of luxury in a brand new style and through brand new mediums. Brands must find ways to make their luxury relevant to millennials, not just using luxury as a label they should aspire to own but to convey true meaning and value to the customers.
E-Commerce is essential
Many luxury brands were surprised by the rapid rise of the digital age. While many understand the power of the internet, usually as a branding and marketing tool, too few have fully embraced the concept of omnichannel strategies.
“The great challenge for brand owners seeking to capture millennials is how to communicate to a generation with shifting preferences and loose brand loyalties, and for whom no single channel appears to predominate,” Deloitte writes.
“Yet amid this apparent uncertainty, the one factor that plays a role in almost every aspect of millennial consumption is the rise of online.”
The internet has pulled back the curtain of the luxury industry and the brands that participate there. It has changed how customers get information and how they make decisions.
A powerful e-commerce presence is no longer optional for luxury brands. But the Deloitte report stresses that “Online sales alone do not capture the full significance of the rise of online interaction.”
Due to the rise of the digital world, luxury brands’ heritage and tradition has given way to immediacy and now. That is a critical component of the new luxury that today’s internet-savvy customers demand.
Tell new brand stories that millennials can share with their friends
One of the more interesting findings in the Deloitte study is the profound influence that millennials’ friends play in their luxury leanings, especially among American millennials.
When asked which of these three choices have the greatest influence on their purchase decisions – a friend they admire, the brand or a favorite celebrity or influencer – 39% of American millennials say their friends have the dominant role, as compared with 27% among the survey average.
Further, Deloitte found that millennials don't have the brand loyalty that previous generations have embraced.
The largest share, 36%, say they will buy what they like regardless of brand.
They are more than willing to pay attention to brands with new stories to tell that are more aligned with their personal values and the values of their social circle.
This is how new emerging luxury brands have gained traction with this generation. These challenger brands talk to the millennials in ways that are more meaningful and valuable to them.
So for example, they are attuned to luxury brands that are more inclusive, rather than exclusive, but that also can be individualized or personalized, like Interior Define in home furnishings or Knot Standard in men’s fashion.
They want luxury that is self-expressive, and not self-absorbed or narcissistic, like LVMH’s TAG Heuer brand, which after trying to move upmarket has returned to more affordable, though still luxury, price points with its “Don’t Crack Under Pressure” positioning represented by brand ambassadors from the sports world.
They want luxury that is democratic, not elitist and reserved only for the 1%, like Shinola and its watch for presidents that most every American can afford to own and wear.
And they crave luxury that is authentic and made for them, not some celebrity, like Canada Goose jackets which are designed functionally to keep its owners warm, whether worn by a super model or the man or woman in the streets of New York or Chicago.
In conclusion, a rising tide of millennial wealth could result in a new luxury boom starting in the middle of the next decade, but only if brands meet this new generation with luxuries that reflect their values and world view. However, if luxury brands keep doing what they’ve always done, putting status before substance, they will miss the mark.
The world’s changed and luxury brands must change with it.