The Pursuit of Legacy and Social Impact
Luxury brands must respond to the demand of HNW consumers to promote social consciousness, Agility Research illustrates.
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Over the last decade, HNW and UHNW consumers, primarily driven by millennials and Gen Z, have undergone a rapid transformation. With millennials and Gen Z emerging as the predominant spenders in the luxury sector (and projected to grow by 38% globally by 2027), these luxury consumers wield significant influence.
The Rise of Purpose-Driven Luxury
In a globally connected world, HNWs are no longer swayed merely by logos or brand recognition. They demand environmental and social consciousness from the brands they support. These discerning consumers don’t just express their preferences vocally; they translate them into purchasing power, opting for brands that align with their values and exhibit purpose-driven initiatives that create a positive impact. Heritage brands now find themselves in a unique position to embed principles of ‘impact’ and ‘purpose’ into their core identity, fostering relevance and garnering respect from consumers.
This shift in consumer preferences coincides with a heightened focus on high spenders and Very Important Consumers (VICs), who are the most loyal to luxury brands. Aspirational consumers, who might have indulged in luxury purchases after the pandemic, are now tightening their spending due to economic factors such as inflation and rising interest rates. VICs, on the other hand, tend to be HNWIs with more stable finances, making them a more reliable customer base for luxury brands during uncertain times.
Navigating Challenges: The Resilience of Luxury
The luxury sector has demonstrated remarkable resilience even during challenging moments, such as the 2008 economic crisis and Covid-19. Following the pandemic, the market not only recovered but experienced robust growth, breaking previous records.
However, this growth trajectory faced a slowdown in 2023 due to various challenges. The Russia-Ukraine war exacerbated the existing market volatility, contributing to an energy crisis and subsequent inflation. Central banks responded by increasing interest rates, leading to a liquidity shortage. This scarcity of funds had repercussions for both affluent and HNW consumers globally, resulting in reduced expenditures on luxury, particularly among the more affluent and aspirational groups.
Despite these challenges, HNW consumers remain resilient, and luxury brands are strategically focusing on this segment in 2024. While the year ahead poses challenges for most brands, there is optimism that by recentring on brand DNA and emphasising heritage and legacy, luxury brands can maintain resonance with HNWs. These consumers, known for their substantial luxury spending over time, are more likely to be influenced by messaging that aligns with a brand’s core credentials, as opposed to short-term tactical measures.
Future Outlook: Embracing Social Impact
Consumers are increasingly drawn to brands that champion social responsibility, environmental consciousness and more ethical practices. In the past, consumers were accustomed to brands defining and shaping their individual identities. However, with the current generation of consumers, this dynamic has undergone a notable shift. A significant portion of today’s consumers expects brands to align with their values and beliefs.
While luxury consumers span various generations, it is millennials who wield significant financial resources and exhibit a penchant for spending. Consequently, a substantial portion of a brand’s focus and initiatives should be directed towards this demographic. This involves aligning with the values, needs, aspirations and expectations of millennials.
Luxury brands are not just becoming increasingly conscious of their practices and environmental footprint, but have the power to become advocates for change, fostering a sense of community and shared values with their consumers.
Take Ferrari, which has joined the United Nations Global Compact, the world’s largest corporate sustainability initiative. Hugo Boss, meanwhile, has established its own charitable foundation focused on climate and environmental protection. Richemont, the luxury goods group behind Chloé, Dunhill and Officine Panerai, has phased out PVC from its products and packaging, representing a saving of one tonne of waste. Overall, 74% of the luxury leaders Agility surveyed said they launched new major environmental and social initiatives to strengthen their brand in 2023.
The future of luxury lies within brands embracing social impact and purpose. By understanding the evolving consumer landscape, luxury brands can leverage their legacy to establish themselves as partners for positive change. Focusing on core values, ethical practices and social responsibility will not only resonate with discerning consumers but also ensure the continued success of luxury brands in a purpose-driven world.
Data for this report has been conducted by Agility Research. For more information about this report or any questions, please email andrea@foxcomms.com
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