The younger generations are one of the main drivers of growth in the luxury sector. If brands want to attract them, they will have to be very clear about one thing: they must be committed to sustainability.
The main conclusion of Deutsche Bank's report Sustainability as the Ultimate Luxury asks: Realistically, how will the bank analyze the consequences of investing in a socially responsible way?
According to their data, the 45 and under demographic is expected to account for around 50% of demand in the luxury sector by 2025. "The environment is the defining issue of our time and younger consumers are seriously concerned about it. They are increasingly backing up their beliefs with their purchasing habits, favoring brands that are aligned with their values and avoiding those that are not," the report says.
How Compatible Are Ethics and Luxury Fashion?
Buying luxury goods is conventionally associated with standing out by adopting a particular aesthetic or set of values. However, the report warns that ethics will join the list and become as important as aesthetics, so that customers will favor brands with purpose, with sustainability becoming an integral part of consumers' perception of quality.
In the last 30 years, luxury has gone from being a 50 billion euro industry to a 280 billion euro industry, growing at a compound annual rate of 6.1%. In the same period, the number of consumers also grew at a rate of 3%.
For Deutsche Bank, the reason for the increase is related to a transformation of the luxury industry away from selective and demographic positioning. "By lowering the threshold for entry into the world of luxury, the target consumer base has expanded and, at the same time, interest in a more global consumer has expanded geographically.
This process found its apogee when Chinese consumers began to participate in the demand for luxury in the late 2000s," he says in his report.
Supply Chains Will Have to Adopt a “Less is More” Approach
To achieve the goal of becoming a sustainable industry, this growth in the number of consumers will have to be offset by a smaller number of units purchased by each consumer.
In this respect, the paper stresses the need to extend the shelf life of products on the basis of exclusivity. In this way, manufacturing would be re-established towards a more controlled, qualitative supply chain with greater proximity to brands.
But, in this case, the youth of the new consumers works against the goal. "The industry is shifting towards an exacerbated fashion impulse, as the desire to be Instagrammable revolves around the idea of novelty, innovation, change.
This is driving brands towards capsule collections and collaborations, as well as more limited manufacturing spaces and faster manufacturing and buying phases, resulting in a shorter product lifecycle," the company suggests.
The report predicts that luxury companies, large and small, will change to adapt to a lower volume of production, but higher price business model. This would mean a 25% reduction in volume and a 20% price increase, according to their analysis.
This approach would mean extending the useful life of products, and in turn, will reduce waste. This provides brand appeal because, as the product becomes scarcer, its desirability is extended. And finally, it helps to extend the cycle through a resale channel, thus generating an economy that feeds back on itself.