In recent years, the global luxury fashion industry has shown a continuous high growth trend. Despite fluctuations in the global economy, it continues to progress. People's demand for quality of life is increasing, and the needs and ideas of people from different age groups, social classes, and regions regarding luxury goods are also constantly evolving. Although major luxury brands add a certain amount of price to their products every year, consumers' enthusiasm for them remains undiminished, fully demonstrating the potential for continuous growth in the luxury fashion goods industry in the future.
Global luxury fashion goods industry
Luxury fashion goods refer to items that are unique and exceed the basic needs of people's survival and development. They can be categorized into clothing, footwear, handbags, jewelry, and accessories. Compared to miscellaneous consumer goods, fashion luxury items not only possess extraordinary appearance, superior quality, and higher design aesthetics but also have more intrinsic value such as artistry, durability, and collectibility, such as the perception and spirit conveyed by luxury brands. Therefore, some fashion luxury items are considered investments worth consumers making.
Luxury products mainly differentiate themselves through originality and fashion design, quality, brand image, and price range. First, luxury fashion goods are original, personalized, and fashionable, designed not only for daily use but also considering the relatively young consumer demographic who appreciate novelty. Second, high-quality and well-made products often feature craftsmanship as their hallmark, distinguishing luxury fashion from mass-market goods. Third, in terms of brand value, luxury fashion brands often have a long history or are backed by renowned designers, possess their own unique background and attributes, or are sub-brands of mainstream luxury brands. Fourth, luxury fashion products differ from mass-market fashion products because they are accessible to a wider consumer base due to their relatively lower prices, while luxury fashion products are more expensive.
The global market scale for luxury fashion goods increased from $189.9 billion in 2016 to $282.7 billion in 2019, and fell to $255.7 billion in 2020 due to the impact of the pandemic. The annual compound growth rate from 2016 to 2019 was 14.2%, indicating an explosive growth in the luxury fashion market and reflecting the considerable purchasing power and consumption desire of global consumers for luxury fashion goods. Global per capita expenditure on luxury fashion goods rose from $25.4 in 2016 to $36.7 in 2019, with an estimated annual compound growth rate of about 10.6% from 2020 to 2025. In contrast, global per capita final consumer expenditure only increased by about 1.3% during this period.
Data source: Analysis by Frost & Sullivan
From the perspective of product classification, luxury fashion goods can be divided into luxury categories and light luxury categories. Luxury categories account for a larger proportion than light luxury categories within luxury fashion goods.In 2020, luxury goods accounted for 55.7% of the entire industry, while light luxury goods accounted for 44.3%. Luxury products grew at a compound annual growth rate of -7.5%, from $101.6 billion in 2016 to $142.4 billion in 2020. The slowdown in 2020 was due to the impact of the pandemic, leading to a significant reduction in people's purchases of both luxury and light luxury goods.According to forecasts, luxury products are expected to grow by 13.3% to reach $252.5 billion in 2025. Although light luxury accounts for less than luxury products, it is also growing rapidly to keep up with the latter. The annual compound growth rate of light luxury from 2016 to 2020 was -12.0%, and it is expected to grow from $192.2 billion in 2020 to $252.5 billion in 2025 at a rate of 12.2%.
Data source: Analysis by Frost & Sullivan
Regionally, the Asia-Pacific region (excluding China) leads the market with a market share of 29.5% in 2020.In addition, the European region accounted for 25.0%, the North American region for 18.5%, and the Chinese region for 20.8%. In recent years, the market scale of luxury fashion goods in the Chinese region has developed rapidly within the entire industry, with a compound annual growth rate of up to 24.9% from 2016 to 2020.Compared to other countries, the Chinese market has developed rapidly in recent years relying on the rapidly growing consumer power and the continuous pursuit of high-quality life. It is expected that the annual compound growth rate will remain at the level of 16.0% from 2022 to 2025.
Data source: Analysis by Frost & Sullivan
In terms of age group, consumers aged 22 to 35 account for half of the global luxury fashion industry.In 2020, although those aged 22 to 35 only accounted for 21.4% of the global total population, consumers in this age group contributed 50.0% of the market share. From 2016 to 2020, the annual compound growth rate of this demographic was 10.2%. Consumers aged 35 to 45 also possess considerable purchasing power, accounting for 31.5% of the market share in 2020.
Data source: Analysis by Frost & Sullivan
The impact of COVID-19 on the global luxury fashion industry
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The epidemic reshapes the distribution channel network
The COVID-19 pandemic has brought significant short-term challenges and profound changes to the customer-facing C-end business model, especially in terms of online and offline channel operations. In the past, online channels were mainly used to increase customer engagement and deepen brand image rather than focus on increasing sales. Starting from 2020, due to regulatory differentiation, offline retail sales and store numbers have plummeted sharply, while online sales have risen sharply, indicating a clear change in consumers' purchasing habits and the transformation of the role of online platforms. The pandemic has made buyers of luxury fashion gradually develop online shopping habits, which are expected to continue in the coming years. In addition, luxury fashion brands are expected to increase investment in online platforms as a key driver for their sales growth. Therefore, online channels possess strategic value in compensating for the losses of offline retail, with some brands seeking to expand their influence by increasing online shopping penetration.
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Changes in regional sales model
Generally speaking, regional sales are divided into developed markets and emerging markets. From the perspective of customer segmentation, in many developed markets such as North America, Western Europe, and Japan, inbound tourists account for a significant portion of luxury and fashion consumption, mainly from the entire Asia-Pacific region. The COVID-19 pandemic led to international flight suspensions, public panic, and the collapse of inbound tourism, resulting in a substantial decline in performance during the outbreak period in developed markets. On the other hand, in emerging markets like China, benefiting from the growing demand brought about by consumer returns, sales of luxury and fashion goods have seen explosive growth. In addition, turmoil protests and violent incidents in the United States have led to decreased sales and more severe losses on fixed assets. Therefore, changes in regional sales models indicate that the sales proportion in emerging markets is continuously increasing, with growth rates reaching double digits, and there have been fundamental changes in consumer groups between developed and emerging markets.
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Consumer preference migration
The outbreak of the global COVID-19 pandemic has weakened consumers' shopping confidence, leading market preferences to shift from seasonal fashion items to classics and value-for-money products, especially in discretionary goods such as bags and jewelry. Sales of clothing and footwear with distinct seasonal characteristics have been severely impacted. Under the impact of COVID-19, social gatherings have decreased, and consumers have reduced their purchasing frequency and spending, resulting in a decline in overall market performance, especially in developed markets where this phenomenon is particularly evident.
driving factors
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Innovating Luxury Products Using Biomaterials
From the changes in the luxury industry in recent years, environmental protection and social responsibility will be long-term driving factors for the luxury industry to become a sustainable one. Currently, the industry has embraced new concepts such as ethical fashion (i.e., production methods, working conditions, and fair trade), circular fashion (i.e., recycling, upgrading, and thrift), slow fashion (i.e., sharing, leasing), and conscious fashion (i.e., environmental protection and green fashion). In recent years, the second-hand vintage market has also seen a revival, with the continuous development of the second-hand vintage watch market providing enterprises with means to tap into new customer groups and promote recycling, as well as long-term purchasing channels for luxury watches and other luxury goods for consumers. Additionally, luxury companies hope to use technological means to develop environmentally friendly new materials, and with the development of science and technology, material innovation will also emerge as a result.
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The continuously expanding consumer scenarios drive market growth
Due to the continuous improvement in brand awareness and recognition of luxury goods and fashion brands, consumers are increasingly willing to pay for brand premiums, especially for jewelry and accessories. Nowadays, consumers no longer only wear jewelry and accessories on traditional important occasions such as weddings and engagements. The demand for jewelry and accessories is shifting from conspicuous features to daily wear to enhance personal image and social value. Consumers' demand for luxury jewelry and accessories has greatly stimulated the market, especially the part derived from daily consumption. Initially, wedding jewelry and accessories, such as diamonds and gold, were necessities of marriage customs and accounted for a significant proportion in the jewelry and accessory market. However, today, jewelry and accessory consumption has become more common in people's daily lives. In addition, consumer preferences and attributes vary between developed and emerging markets. Consumers in developed markets emphasize social status, confidence, and taste, while consumers in emerging markets tend to have a stronger brand awareness and prefer items with decoration, logos, and obvious embellishments.
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Consumers' preferences have shifted from unbranded products to branded products.
With the increase in purchasing power and wealth levels, people's consumption expenditure on disposable goods, especially luxury fashion products, has increased significantly over the past few decades. More specifically, the consumption upgrade in developed and emerging markets has led consumers to shift from unbranded goods to branded ones in pursuit of a high-quality life. In response, today's luxury fashion brands not only differ in product prices but also clearly emphasize service quality, customer experience, and community operations to expand their business scale and convey an exquisite and high-end lifestyle attitude, winning the admiration of the middle class and high-end individuals for refined tastes.
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The consumption power of the younger generation is on the rise
The younger generation, especially Generation Z and Millennials, are at the forefront of luxury and fashion consumption. This consumer group enjoys novelty, bold design, and new concepts, redefining market preferences. In addition, the surge in female consumption is related to 'feminomics,' revealing an improvement in women's social status and economic independence. It has promoted the demand for impulsive shopping or self-gift shopping to please women themselves. Moreover, the concept of 'buying better, buying less' is revered by consumers of luxury and fashion goods, serving as their basic principle when shopping, which has also made the entire luxury and fashion market more prosperous.
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Promote sales through a omni-channel strategy
The widespread promotion of the omnichannel strategy has facilitated the development of luxury and fashion product brands through specialized and geographically balanced distribution networks and optimized consumer purchase paths. The emergence of online channels has played a key role in driving overall sales growth, and has increased customer engagement and interactivity through social media, celebrity endorsements, and KOL promotion, attracting customer attention and deepening brand image. In addition, the expansion of various offline retail stores (including but not limited to airport shops and duty-free stores) has been beneficial for luxury and fashion product brands to cope with changing market demands and promote significant overall sales growth.
Image source: Internet
Future trends
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Luxury NFTs and Fashionable Games
Major luxury brands have now entered the non-fungible token (NFT) market, which represents digital (encrypted) products or ownership rights created based on blockchain technology. "Non-fungible" means that the related products are irreplaceable and that the holders of non-fungible tokens are the sole owners of the digital assets. In recent years, NFTs have gradually appeared in the luxury industry. Since blockchain technology can help track product origins, historical information, and previous owners, NFTs serve as a tool for verifying the authenticity and ownership of products, positively improving the challenges faced by counterfeit products in the luxury industry. For example, in 2021, Dolce & Gabanna's first NFT series targeted traditional consumers who frequently purchase its high-end products and released this series at its inaugural NFT auction.
The magic of NFTs in the luxury industry also lies in their connection with the gaming industry. In games, another use of NFTs is to create digital skins for game characters, which are popular among Generation Z consumers. Within games, player communities can be formed, allowing consumers to have imagined experiences, build groups, and gain a sense of belonging. Virtual clothing, as an important part of gaming culture, will bring significant opportunities to the luxury industry for gamers who love 'customizing' virtual characters. Additionally, the important features of 'virtual luxury' also include its vitality and accessibility; even those who cannot afford luxury shoes can own and use virtual branded goods, satisfying people's spiritual needs.
For luxury companies, entering the gaming sector will be a way to interact with the younger generation and a trend for development over the next few decades. For instance, Burberry designed skins for characters in 'Honor of Kings', and Valentino created 20 pieces of clothing based on its early autumn collection for the well-known game 'Animal Crossing', which are available for the characters to wear in the game. These examples demonstrate that the luxury industry is getting involved in the gaming sector and exploring its development potential.
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Cross-selling and product portfolio diversification
Every leading luxury and fashion brand has high-quality products and unique styles to attract its core customer base. Recognized luxury and fashion brands tend to emphasize their highly skilled craftsmanship and iconic designs, complemented by limited editions and high-profile collaborations, artificially creating scarcity of products to continuously win customer favor. In addition, expanding the product structure by entering adjacent categories, from hard goods to soft goods, is expected to drive companies to extend their brand life cycles and develop customer value.
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Enhance the unique consumer experience
Luxury and fashion brands are committed to completely transforming the customer experience by providing efficient online services and differentiated offline shopping experiences. Online after-sales service and delivery efficiency have a significant impact on customers' satisfaction with online stores. In the long run, it is expected that luxury and fashion brands will continue to seize prime locations in commercial real estate centers to showcase their differentiated brand vision with professional and considerate services.
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Centralized competitive landscape
Despite the continuous rise of emerging brands, in the long run, the competitive landscape tends to be concentrated. Due to the high entry barriers for brand building, established luxury and fashion brands will continue to dominate customer minds with their excellent brand recognition. In addition, by establishing a portfolio through mergers and acquisitions, luxury and fashion brands can continue to expand their customer base and increase their market share to maintain their leading position.
