By Eileen Redmond-Macken, Private Banking, Investec.
The luxury sector is undergoing a period of major transformation.
Faced with a growing customer base of younger buyers increasingly concerned with the future of the planet, alongside a mass re-evaluation of consumer expectations driven by the pandemic, this is a time of significant change for luxury businesses new and old.
While this transformation creates many opportunities for innovation, it is not without its challenges. Here are some of the key trends luxury brands should be considering.
Brand reputation is built on values
While customers were once attracted by a brand’s aspirational status or extensive product line, a growing number are now more concerned with how a company aligns with their personal values. They seek – as Accenture puts it in its report ‘The Rise of the Purpose-Led Brand’ – “long-lasting relationships grounded in a common purpose.”
This trend is being driven most notably amongst younger consumers; a global survey examining brand trust amongst Generation Z – those born between 1997 and 2015 – shows that 72% are more likely to buy from a company that contributes to social causes.
And, like many of our preferences and behaviours over the last year, it is being shaped by the pandemic. Research suggests that Covid-19 is prompting a moment of mass reckoning, causing many to reevaluate their own values and sense of purpose.
Highlighting what Canvas8 describes as a “heightened social consciousness,” the online petition platform Change.org reported that the number of UK-based petitions on its platform increased by 119% in the 12 months to mid-2020, while the number of users nationwide grew by 20%. According to Change.org, this trend was in large part driven by the pandemic; “in ten countries the Covid-19 outbreak played a major role in boosting civic engagement,” the platform said.
The implication for brands? With growing social consciousness comes a more discerning customer. Brands are increasingly judged by the way they interact with society. Customers, therefore, want to see what values are at a business’ heart, and how they’re demonstrated. Luxury goods have gone beyond product – of course the quality of a product is important, but the ethos behind a business can be what ultimately drives a decision.
A shift towards sustainable consumption
Drilling down into values more specifically, sustainability and environmental impact should be high on the list for all luxury business.
Investec recently partnered with Walpole – the official sector body for UK luxury – to publish the Walpole Sustainability Report, featuring a foreword by my colleague Barbara-Ann King, Chief Commercial Officer for Investec Wealth and Investment. She writes: “Brands are increasingly judged on the way they interact with the society in which they operate, and customers want to see what values are at their heart and how they’re demonstrated.”
In April 2020, Investec research found that 63% of consumers today consider a brand’s sustainable credentials before purchasing. Additionally, 79% consider how environmental the packaging is. “Brands without ESG at their core, we believe, will soon find themselves struggling to survive,” writes Barbara.
This is another trend which has been exacerbated by the pandemic, which has served as a pressing reminder of the threats facing humanity – as well as demonstrating in near real-time the effects of global lockdown on carbon emissions. The same McKinsey data found that two-thirds of consumers see it as more important than ever to limit climate impacts in the wake of the Covid-19 crisis.
For luxury businesses, there is an opportunity – indeed, responsibility – to accelerate these trends even further. And there are countless ways to do so, from extending a product’s lifetime through circular initiatives, to embracing new materials that contribute positively to biodiversity and the environment. The luxury sector has the chance to be a leader in this respect, finding ways to bring together brand legacy with innovative new processes.
Authentic connection is key
The ability to build human connection with your customers has long been at the heart of a successful business.
In recent years, however, this attribute has moved front-and-centre for many consumers; 90% say that authenticity is important when deciding what brands they like and support, with 61% believing authenticity to be the most important component of impactful brand communications.
As brands have moved online, with even the most traditional bricks and mortar retailers forced to embrace ecommerce to survive the pandemic, finding ways to stay connected to your customer has become a key consideration. For the luxury sector, which typically prides itself on quality customer service, one-of-a-kind experiences and bespoke interactions, this has been even more of a priority.
Many luxury businesses have turned to online channels to maintain relationships with their customers, but it’s those who adopt a tailored approach, aimed at meeting genuine needs, which have been most successful. The luxury footwear brand Manolo Blahnik, which partnered with the Mental Health Foundation to turn archived sketches into a downloadable colouring book during lockdown, is a good example in this respect.
The role of financial services
As a bank and wealth manager, we and our clients share many of the same values as Walpole and its members, particularly when it comes to ESG. And we are also seeing similar changes within our own sector. Recently we’ve seen growing demand for green financing solutions, for example. At Investec, we see our role as expert partner and facilitator: providing progressive luxury companies with bespoke financing solutions to help them scale up and make the world a better place.
In 2021, all brands have a responsibility to do their bit. We can contribute meaningfully to our people, our clients, and our communities – living in society, not off it.