The demographics behind who is driving consumer trends are changing. "For one thing, today's woman has more money to spend on herself," says Erwan Rambourg, Global Co-Head of Consumer and Retail Research for HSBC Securities and moderator of a recent panel discussion at the HSBC Global Emerging Markets Investor Forum. "More women around the world are entering the workforce, and wage gaps are narrowing," he says. "Fewer women are marrying and having kids, or if they are, they're waiting to start their families."
Asian consumers are also increasingly important as the middle class continues to grow. "By 2030, it's expected that Asians will represent two-thirds of the total middle class," explains Mr. Rambourg. Younger Asians are also not straddled with the same kind of debt millennials in the West are. "This is one of the reasons we also believe the millennials and GenZ will be significant in setting consumer trends," he says.
Tessie Petion, Head of ESG Research, Americas, HSBC Global Research, agrees. "Although older consumers have more disposable income than younger people, the younger generations are prioritizing what they spend their money on," she says. "Their values are different. They are more health conscious, and they are likely to care more about the environment and social issues." All this, she says, is shaping their buying decisions.
In Nielsen's report, The Evolution of the Sustainability Mindset (November 9, 2018), the authors note that the majority of consumers (71 per cent) say they would change their spending habits to reduce their impact on the environment. Forty-one percent said they would pay a premium for products that have lower environmental or social impact. This is true across all generations, but millennials, GenZ and GenX are most passionate.
The result? Younger women, particularly Asian women, are quickly growing to become the world's most influential consumers. They are dominating the luxury market – spending their money more intentionally by buying less but better and making more value-driven purchases.
What will luxury mean in the future?
Perennial luxury brands like Louis Vuitton, Gucci and others will likely always be in demand. Others, like Burberry, are reinventing their brands to meet changing consumer demands. However, there will also be emerging luxury brands driven by technology and shifting values. Man-made diamonds and faux fur are just two such growing industries.
Although older consumers have more disposable income than younger people, the younger generations are prioritizing what they spend their money on...their values are different. They are more health conscious, and they are likely to care more about the environment and social issues.
According to Paul Zimnisky, CFA, founder of Paul Zimnisky Diamond Analytics, the recent increase in gem-quality man-made or synthetic diamonds came about in part from research and development in the solar and LED lightbulb industries. "It's really only been in the last few years or so that the diamond industry began using this technology to produce jewelry-quality diamonds on a larger scale." Although it appears the primary catalyst for producing better man-made diamonds is to eventually cater to the high-tech industry, using diamonds for quantum computing and advanced optics and laser equipment for instance, it has also resulted in higher-quality diamond jewelry products. These synthetic diamonds, which are available for lower prices than natural diamonds, are being marketed with guaranteed conflict-free origins and a smaller environmental footprint, he explains.
Synthetic diamonds represent less than 5 per cent of the estimated USD80 billion diamond jewelry industry, says Mr. Zimnisky. But will they be considered a luxury item? Probably not, he says. Five years ago, a typical synthetic diamond engagement ring sold for about a 10 per cent discount. "Now some are as much as 80 per cent-85 per cent lower," he says. "And I think the price point will continue to come down." When that happens, these diamonds will likely be perceived more as fashion jewelry than as a traditional luxury item. While Mr. Zimnisky says they may remain an alternative for the socially-minded, they are not rare or valuable – something luxury consumers typically are looking for. "The consumer interested in a diamond with traditional value and rarity characteristics is just as likely to opt for an ethically-sourced, conflict-free natural diamond."
Gustave Maisonrouge, on the other hand, believes the wave of new faux fur brands – like Maison Atia, which he co-founded with Chloe Mendel, a sixth generation furrier – can be considered luxury. Mr. Maisonrouge, a millennial himself, says that while his generation might appreciate the craftsmanship and aesthetic of real fur, they are uncomfortable with the morality and ethics behind it. "Just like any product, including traditional fur, there are lower quality, as well as luxury options out there, such as Maison Atia" he says.
While a well-made faux fur may be considered a luxury item, is it a better choice for the environmentally-conscious? "Faux fur can be made using mohair, rayon or modacrylic, which is a plastic polymer," he explains. Modacrylic is the easiest to manipulate, holds its shape best and has the best hand feel. Although the technology relies on plastic, Mr. Maisonrouge says he doesn't see it being as much of an issue as it might be with fast fashion that's disposed of after a season or two. "In addition to our goal of identifying and working with recycled fabrics, our coats are well-made statement pieces, meant to be enjoyed for twenty years or more."
Which luxury brands will win the future consumer's heart?
Katie Harris Storer, Vice President at The Carlyle Group, says winners will be those who adapt to the changing buying patterns of tomorrow's consumer – what her needs are, where she's discovering brands and where she's shopping. This is true for established luxury brands as well as newer digitally native brands.
"Large brands are trying to be more nimble, investing in ways to increase their agility in the market," she says. That includes investing in technology or data-oriented solutions, or investing in earlier stage businesses to acquire growth. Smaller, entrepreneurial, digitally native brands have the benefit of being tailor-made for the future consumer, particularly millennial and GenZ consumers. "They're developing new points of connection with the consumer, and their business models are already oriented toward meeting consumers where they are shopping – YouTube, Instagram, in-store or online," says Ms. Storer. These brands are purpose built for the younger generations and many have proven the ability to scale quickly. "Regardless of growth profile and agility in the market, it's still fundamental for both younger and established luxury brands to build emotional and functional loyalty to win over today's consumer, particularly younger Asian female consumers."