The changing face of the luxury market

Luxury was once defined simply by price and quality, but unless you have been living in a parallel universe, you will realise that this is no longer the case.

Today, the question of luxury is ultimately a personal one. A black cotton Armani T-shirt can be someone’s treasured closet piece, while for someone else, an ultra-rare Hermes Birkin could be just another collectible. In both cases, luxury is not easy to define and is definitely not limited to a single physical item. The evolution of this intricate category has definitely had an impact on how consumers perceive luxury today, and how brands and markets are shifting to keep up with these changes.

The global luxury market is a massive platform and continues to grow, exceeding $1 trillion in 2016. What is interesting, however, is that although the physical product seems to be the star of any luxury purchase, the personal luxury goods category is essentially flat, with the exception of luxury automobile purchases. Today, there is an obvious shift in luxury consumption habits with the growth of out-of-home experiences. This new sect comes in the form of travel, gastronomy, hospitality, and is growing faster than any luxury goods division, by at least 5 per cent.

While wholesale remains the largest channel for personal luxury goods, the retail channel is massively evolving in the form of e-commerce and off-price stores, allowing for a smooth and instant purchase journey for today’s demanding customer. Not only is everything available online, but products within luxury categories have also been made more casual, with sneakers and backpacks amounting to a massive $3bn and $2bn market respectively, while sales in the hard luxury category including watches and jewellery have declined by 5 per cent in 2016.

In the UAE, money never previously seemed to be a variable in any purchase, let alone luxury purchases. But several economic factors have had a major impact on the country’s luxury sector. The devaluation of Russian and Chinese currencies, decrease in touristic spends, oil price changes and regional political tension are the main drivers of the past and there are more implications to come. In 2018, it is expected that consumer confidence and spending will be disrupted mainly among the middle and middle-upper income class with the introduction of VAT.

Beyond economic factors that are out of our control, the young country has also witnessed several natural factors within day to day life that have had implications towards the shift in luxury perception and behaviour.

The explosion in high-end ‘hipster’ culture has created an interest in minimalism and a simpler lifestyle. Living in this country, many of us have heard stories of being rejected entry into a certain club for wearing sneakers, but what has happened now that sneakers have became the ultimate fashion icon, and every brand from Kenzo to Gucci is featuring the statement piece in their latest collection? Are we still banned entry or has this transformed into acceptable fashion and premium attire?

Minimalism also comes in the form of pop-up entertainment events and spaces, health and fitness experiences, and the growth of local fashion brands – all the while shifting affluent consumers away from an extravagant and designer label-led culture.

Things to do and places to visit have become far more simple, affordable, and casual. One would never have expected that during her short visit to Dubai, A-list pop star Rihanna would visit the much-loved urban and casual Jamaican venue, Miss Lily’s, instead of dining at one of the city’s top-end restaurants. Luxury in the UAE has become simple and diverse in definition, and in experience.

Millennials in the country are an additional driver of the simplicity of life, while fuelling a culture of entrepreneurship versus full-time employment. With that, an experiential lifestyle is driven by a work-life continuum where travel experiences are all the more frequent and important. This has inspired non-entrepreneurs and full time employees to follow suit. Investment in travel, self-experience, and exploration are being recognised as a much higher priority than buying the latest Chanel boy handbag.

Although such reasons suggest a much simpler definition of luxury, disposable income continues to grow in the country despite dampened consumer confidence due to falling energy prices.

Supported by high mobile penetration, payment methods using smartphones are on the rise and the trend is spreading against numerous categories. Not only are these high penetrations allowing for instant connectivity and purchases, but they are also are linked to the boom of social, content and influencer marketing. Local ambassadors and content integration are almost forcefully a part of the daily routine within the luxury world and experience. This exposure not only creates cravings and the urge to own certain items, but also clearly demonstrates a head-to-head collision with the minimalistic culture taking place.

In light of this economic reality and the contradictory changes in local UAE culture, what really defines luxury for a UAE consumer? Do we find ourselves trapped or unwilling to let go of the old mind-set, or are we accepting the new?

This ‘old’, represents the traditionalists, whom are luxury ambassadors holding on to the material world, the legacy brand heritage, and the timelessness of physical product. Meanwhile, the ‘new’ represents luxury futurists, who believe in owning experiences over things, and a knowledge sharing economy driven by stories and purpose behind each brand. Where do we really stand as UAE luxury consumers?

Suggested research, focus groups, and studies cannot define an exact answer. In fact, results suggest that we are stuck somewhere in-between where we may feel like luxury futurists, but think and act mostly like luxury traditionalists.

That being said, the research suggests that UAE luxury buyers seem to have embraced new thinking, with 66 per cent falling under the new, and 34 per cent existing under the old luxury mind-set.

Moving forward, luxury brands must put the consumer, the consumer journey, or more accurately, consumer experience planning at the very heart of any model or method. According to Publicis Media’s latest Business Transformation study, the fashion and retail category is the most likely to experience high disruption in the next five years, so continuation to a new model is necessary to make brands relevant to their end users.

Overall, luxury is a form of self-expression, rather than a status symbol. It has become more accessible to a wider audience of people throughout a changing shift of consumption, economy, and most importantly, experience itself.

In light of those shifts, the evolution of this sumptuous category has not only re-shaped consumer perceptions and understandings of luxury, but also encouraged brands to focus on experience over ownership and adapt to fast-changing consumer needs to survive these turbulent times.

Maya Kusybi is associate director – media at Zenith Middle East