Flagship Stores Grow Bigger And Bolder Luxury Brands Target Millennials And Gen Z
The year 2024 has proven to be a challenging one for the global luxury goods market. With consumers scaling back on their luxury retail spending due to macroeconomic uncertainty and rising prices among brands, the industry has taken a hit. According to a recent report by Bain & Company, global sales of personal luxury goods are expected to decline by 2% this year, with China, a key market, estimated to have seen a decline of 20-22%. Even with this downturn, some outliers like Hermes and Prada Group have managed to buck the trend and report double-digit earnings growth, while others such as Richemont Luxury, LVMH and Moncler Group have reported slight declines.
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Despite these challenges, Singapore continues to be an important market for luxury brands. Euromonitor has reported a growth of 11% in sales of luxury goods in 2023, reaching $9.1 billion. In recent years, luxury brands like Dior, Chanel and Louis Vuitton have embraced robust digital strategies, including e-commerce and digital marketing, in order to engage customers.
These efforts are crucial in a world where consumer behaviors, expectations and preferences are rapidly evolving. However, luxury brands also recognize the importance of creating offline (physical) shopping experiences to build closer connections with their customers. In fact, in recent years, many luxury brands have been focusing on creating unique experiences for their top-tier clients, with flagship stores becoming bigger and bolder.
For example, Louis Vuitton recently opened a 690 sq m (7,427 sq ft) “apartment concept” space at Ngee Ann City dedicated to its “VICs” (very important clients). Similarly, Burberry has reopened its extensively renovated stores at Marina Bay Sands and Paragon this year, as well as opening a new street-facing store on Orchard Road at Wisma Atria.
In order to continue growing, luxury brands are turning to several factors. These include the steady increase in high-net-worth individuals (HNWIs) worldwide, particularly in emerging markets such as China and Southeast Asia, as well as the buying interest of Millennials and Gen Z, who are expected to make up at least 75% of the global luxury market. Additionally, the resurgence of tourists from China and the continued growth of travel (duty-free) retail, especially in Japan, are also expected to contribute to the growth of the luxury goods market.
Moving forward, personalization and customization will be crucial for luxury brands to build deeper connections and brand loyalty with customers. Additionally, leveraging AI and digital experiences will allow brands to better understand and cater to customer wants, complementing offline experiences. Some luxury brands have already begun leading the way in this area, such as Dior’s AI platform, Astra, which collects data from multiple channels to stay attuned to customer preferences.
Innovative use of AI can also be seen in the recent Balenciaga Paris Fashion Week show, where the runway, ceilings and walls were transformed into an immersive digital canvas using AI-driven digital distortions. Similarly, Brunello Cucinelli has created a separate website powered entirely by generative AI.
Despite the challenges faced in 2024, growth is on the horizon for the luxury goods market in 2025 and beyond. Luxury brands will continue to increase their store count, build larger flagship stores and create elevated experiences for their VVIP customers. With Millennials and Gen Z forming their largest customer group, these brands will also need to embrace sophisticated digital technology and platforms while building strong omnichannel strategies, including immersive and interactive physical stores.