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.