The global luxury industry is in for one of its biggest challenges: ‘ They need to adapt for the upcoming Generational shift.’ says Portia Antonia Alexis. The Mckinsey Alumni who covers consumer goods trends and now does economic research for the London School of Economics urged brands to focus on Generation Z. She sat to speak to us about the ways Gen Z are disrupting the luxury industry. 

According to Portia’s latest research she indicates that Generation Y (millennials) and Generation Z will account for 180% of the total growth in the global luxury markets between 2019 and 2025. The shift of generational wealth over this period will boost the purchasing power of younger generations.

Over the coming years, some critical developments will be the rise of online luxury spending, changing consumer behavior, and the influence of online marketing activities on consumer purchases. The luxury industry will witness more conscious buyers, making sustainability a key goal for luxury brands.

Speaking to Portia she aimed to explain understand the growing impact of Generation Z on luxury purchases in the future and how brands can prepare for this new demographic.

Generation Y and Generation Z to Dominate Luxury Purchasing

According to Portia Generation Y and Generation Z will be the biggest spenders by 2025, accounting for two-thirds of the net luxury spending across the world. While the share of Gen. Y will grow from 44% in 2020 to 45%-50% by 2025, it is Gen. Z that will register the highest growth during this period.

Some exciting facts depicting how the purchasing power of Gen. Z will grow in the coming years are: 

• Generation Z to account for 20% of luxury spending: The share of luxury spending by Gen. Z is set to rise from 8% in 2019 to 13% in 2020 and 20% by 2025, registering a growth of over 250% between 2019 and 2025.
• Accessible luxury products to grow: Entry-level luxury products across retail brands accounted for 50% of the net luxury sales, indicating the growing participation from Gen. Z. Brands will have to innovate and consistently upgrade their entry-level luxury offerings to cater to this growing consumer segment.
• Second-hand luxury markets to grow: The second-hand luxury products segment witnessed a growth of 9% in 2020, hinting towards a specific behavior from Gen. Z. The youngest luxury buyers are eyeing second-line products to fit their budgets, allowing them to own luxury items without overblowing their spendings. This trend is expected to grow in the coming years.

Generation Z will gradually become a significant growth driver across different luxury product verticals. As their spending power grows, they will venture into mid and higher luxury segments. Additionally, second-hand luxury items will gain popularity, prompting brands to focus on the resale value and quality of their products in the long-term.

Generation Z: A Digital Native Generation

Generation Z is the first digitally native generation, which means they grew up with social media platforms. Social media penetration is highest among Gen. Z consumers, 90%, followed by Millennials, 82%.

It is no surprise Portia says that Gen. Z will expect luxury brands to have a strong social media and online presence.

• Online influenced purchases reach 85%: Unlike the previous generations focusing primarily on physical outlets, Gen. Z interacts with brands online through digital storefronts and social media. The net purchases influenced by online brand presence reached 85% in 2020, up from 75% in 2019. More brands are investing in their digital presence to cater to this changing consumer demographic.
• Online luxury market grows 50% YoY between 2019 and 2020: While most of the luxury sales channels witnessed a drop in 2020, online retail remains the only channel to register a growth of 50% year-over-year. Experts see tremendous growth potential in online luxury sales over the next couple of years.
• Online luxury sales to account for 30% of luxury spending: Between 2019 and 2025, online luxury retailing will emerge as the biggest sales channel in the global luxury industry. The market share of online stores will reach 30% through 2025, witnessing a growth of 2.5x between 2019 and 2025.

Generation Z is constantly online, interacting with brands, creators, and public figures at never-seen-before levels. They prefer direct brand-to-customer communication channels, making it critical for luxury brands to redefine their online marketing, promotional strategies.

Generation Z: Social impact will be a Key Factor in Luxury Purchases

According to Portia another key trend that will gain popularity in the coming years will be the social impact of luxury brands. Research reveals that younger customers put significant emphasis on diversity, equality, environmental challenges, among other social factors.

Factors driving luxury purchases: Aspirations, inspirations, and self-expression

Generation Z will respond differently to luxury brands, focusing on the aspirations, social value, and self-expression instead of the functional quotient of a luxury product. How luxury brands position themselves in the market through multi-media content will play a focal role in brand perception. Portia advises us to focus on 3 factors: 

• Lack of diversity, representation affect brand perception: Purpose-focussed shopping is likely to be a major trend among Gen. Z customers. As many as 56% of Australian consumers share that a lack of diversity has an impact on their perception of a brand. Additionally, nearly half of Gen. Z customers feel under-represented in current branding and marketing initiatives.
• Preference to brands with similar social, ethical values: Generation Z is affected by the social stand of their preferred brands and wants more brands to take a stand on various social issues. Over two-thirds of Gen. Z customers purchase products from brands that align with their ethical values.
• Sustainability to be a major buying factor: As many as 56% of luxury consumers follow the social behavior of their preferred brands. Nearly 62% of customers prefer sustainable brands over their conventional counterparts. Some of the primary factors buyers value while gauging the sustainability of a brand are environmental impact, ethical manufacturing, and animal care.

The growing younger clientele of luxury brands requires luxury brands to reposition their social stand, be more socially responsible, and project their stand, efforts towards social causes through various marketing channels.

Portia reminds us that as Generation Z becomes the most dominant consumer segment over the next two decades, brands should be ready with a strategy to capture this growing customer base.