Growth in sales of luxury goods is currently being driven by millennials and Generation Z - and their expectations are reshaping the future of the industry, according to a new report by Deloitte.
Millennials are those born between 1980 and 1995, while Generation Z are those born between 1995 and 2014.
The fifth annual Global Powers of Luxury Goods report, recently released by Deloitte, says these two groups collectively will represent more than 40% of the overall luxury goods market by 2025, compared with around 30% in 2016.
The rise of AI
Unlike Baby Boomers (those born between 1945 and 1964), many millennial luxury consumers expect to interact with brands across a range of digital platforms, rather than only through traditional channels, says Jolandi Grace, Deloitte Africa luxury and fashion community practice leader.
The younger shoppers seek a personalised shopping experience that seamlessly integrates both online and offline platforms, according to the report.
This shift has motivated demand for connective technology such as augmented reality (AR) and artificial intelligence (AI).
By using AR and AI technologies, luxury brands can provide a personalised consumer experience, reach a wider audience, deepen product experience and build stronger customer relationships, the report argues.
A range of platforms
Historically, luxury fashion brands have based their identity on exclusivity, prestige and impeccable service, retaining a dignified distance between themselves and their customers.
However, as sales have slowed, luxury brands have been compelled to engage with consumers via social media using digital marketing and web listening data analytics to gain insights into customer behaviour.
Instagram has also emerged as the leading social media platform for fashion designers where previews of designs can be shared and ordered via the platform.
Retail lagging behind
The retail sector is lagging behind other consumer industries in recognising the increasing purchasing power of tech-savvy millennials, according to Grace.
In her view, that is one of the reasons why sales growth and profitability in the luxury goods industry has underperformed in recent years - in other words, partly because of challenges in adjusting to changed demographics.
The report shows that total sales of clothing and footwear in Europe and North America fell more than 50% of the global market in 2017 - less than half in 2018 - while sales in Asia, Latin America, the Middle East and Africa combined were predicted to rise above 50% and continue to increase in 2018.
The Deloitte report found that the development of technologies such as voice commerce and the Internet of Things (IoT) are reshaping the entire luxury industry. Luxury brands positioned as reliable sources of AI-driven recommendations are improving how they engage with consumers.
The more widespread adoption of AI is also making consumers increasingly reliant on suggestions and advice provided by their various devices, rather than making decisions based on personal experience.
Luxury brands are, therefore, increasingly using AR in combination with their physical retail stores to enhance the shopping experience of their customers.
This technology has been innovatively utilised to help consumers visualise and "try" new products at home before making a purchase.
"Unlike Baby Boomers, many millennial luxury consumers expect to interact with brands across a range of digital platforms, rather than only through traditional channels. Even though digital is transforming the luxury retail sector, millennial consumers are still important for in-store shopping too and expect a high-value, customised experience at that," says Grace.
"Digital platforms present an opportunity for luxury brands to change their business models to meet this demand. For example, providing more loyalty programmes and invitations to in-store events.
"The future success of the industry will depend on its success in permeating and proactively reaching out to the younger generation. The biggest challenge for luxury brands will be to make optimum use of digital technologies without compromising their brand values."
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