A desire for luxury experiences is winning over demand for brands and labels, as wealthy consumers seek self-actualisation over material goods, said Boston Consulting Group

In Hong Kong it not unusual to see long queues of people outside a Louis Vuitton store; Chinese mainland shoppers willing to wait over an hour to buy a $2,000-plus handbag. But this could be a thing of the past, according to a new report.

A desire for luxury experiences is winning over demand for brands and labels, said Boston Consulting Group’s recent white paper, entitled
“Lux Redux: Raising the Bar for Selling of Luxuries’.

Consumer expenditure on luxury experiences now makes up almost 55 per
cent of total luxury spending worldwide, and year on year, has grown 50 per
cent faster than sales of luxury goods. Even in brand-obsessed
China, experiential luxury dominates, with a growth rate of 28 per cent compared to 22 per cent for luxe product sales.

Research shows that some luxury goods
firms are starting to catch on, and are extending their brands into the realm of
up-market experiences. For instance, Louis Vuitton Moet Hennessy (the holding company of Louis Vuitton) is
partnering with the Cheval Blanc hotel franchise to create memorable experiences
and interact with its clients on different level, rather than purely
encouraging an occasional spending spree. BCG’s findings
show that US consumers are three times more satisfied with their luxury
experiences, as they are with their purchase of luxury goods.

This shift comes as a result of a number of developments. BCG said that the wealthy
generation of the 90's have accumulated their desired share of material goods,
and are now looking for fulfillment through other means. Similar to the stages
illustrated by Maslow’s Hierarchy Of Needs theory, these individuals are beyond
feeding their self-esteem and are now gravitating towards the top of the
pyramid, namely, self-actualisation.

Changing Consumer Values

The financial
crisis is also causing consumers to question their values, said BCG, and as a result
it is getting harder to convince people that spending more on luxury goods is worthwhile.

A contributing factor is the
fading boundary between luxury and mass markets. Brands are fully aware of this trend and some are putting it to their advantage. Low cost fashion
retailer, H&M, has had successful collaborations with
high profile designers including Versace, Karl Lagerfeld and Stella McCartney.

However, while “masstige” (prestige
for the masses) is a serious challenge for high-end brand names, BCG insists
that there is room for growth in the ultra-luxury segment, “because consumers
today are longing for something special in a world of mass production.”

Untapped Markets

Another area of growth potential for
the luxe sector lies within the emerging markets. BCG writes that most luxury
players are expecting, and indeed planning for, growing demand from these countries.
The company cites a study of eight major luxury houses; showing a 42 per cent
hike in the number of stores in Asia from 2008-2011, a 28 per cent rise in
Europe and a 32 per cent increase in the rest of the world during that time
period.

Consistent with headlines, China’s
newly-affluent make up the bulk of luxury brand expenditure,
accounting for 40 per cent of global sales. This compares with the world’s
largest economy, the US, which accounts for a significantly smaller proportion,
recording 19 per cent.

The US does however account for 37 per cent of global
high-end-car purchases. In light of this, BCG stresses the
importance of the need to re-educate US consumers in luxury knowledge, in order
to tap into their discretionary expenditure budgets. In fact, the firm
estimates that if US consumers were purchasing the same volumes of personal goods
as Italians do, the global market for luxury goods would be 40 per cent larger
than it is today.

Embracing Online

The importance
of embracing social media is also key for retailers. One of the leaders in the multimedia space is
Burberry. Its Facebook 'following' skyrocketed from 600,000 in February 2012 to
more than 12 million just over two years later. One of the main benefits of a
successful digital strategy is enabling a brand to connect with consumers that
may otherwise never have been on its radar – perhaps because they were in the
‘wrong’ age bracket or their hometown isn’t host to one of its stores.

With these buds of growth in mind, BCG
remains confident that the luxury sector will continue to bloom, as long as key
market players reinvent themselves in response to the ever-developing trends
outlined. And based on last year’s
double-digit year-on-year profit gains, the race is on to turn potential into
profitability.