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Retail Trends

The Tastemakers

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Color the Millennial Generation in Burberry plaid.

In the first quarter of 2011 alone, the British luxury brand added more than 600,000 “likes” to its Facebook page. At that rate, it’ll reach 10 million by the middle of next year.

Respond with a shrug and you may encounter more than the disdain of your pals and their virtual “friends.” If you are a luxury brand, you may also experience a slow decline. Digital channels are no longer just about looking up past loves and posting pictures of kids; following the lead of those born between the early 1980s and early 2000s, they offer brands a way to connect, engage and build loyalty at the click of a button.

Combine that with the fact that the Millennials — also known as Generation Y — represent the largest consumer group in U.S. history, and luxury brands that “get it” have reason to perk up, experts say.

But not so fast. Millennials, as a whole, are making conscious choices with their cash. They’re more interested in value than heritage and authenticity vs. tactical marketing that rings untrue. And watching the way they’ve influenced fashion, technology and even workplace attitudes in recent years, the outspoken, DIY, anything-is-possible generation will leave its mark on luxury, too.

“One thing I’ve found is that, if you look at the younger audience, it tends to be a harbinger of the entire audience,” says Paul Hurley, CEO of flash sale site ideeli, which offers members-only access to luxury brands online. “What they do now, they will likely do when they’re older. But what they’re doing now gets communicated to other segments of the population, as well.”

Younger consumers are less willing to put up with “baloney,” he says. “And when you see that in action, through somebody you know in that age group, you start saying, ‘That makes a lot of sense.’”

So what is this younger consumer putting up with?

Milton Pedraza, CEO of research firm Luxury Institute, says “legacy” products are key, and that’s where luxury brands are gaining ground. Millennials typically view expensive purchases as necessary investments in themselves — falling more into the “need” than the “want” category — but “people still don’t spend as much on luxury as they did before,” he says.

“They don’t necessarily need a bag for every season.... There’s a differentiation between the trendy stuff and the classics. They’re willing to pay more for an item, but it better last forever with a capital ‘F’. They want durability: durability in design, durability in quality, durability in style and in materials.”

A gaze into the crystal ball
New York think tank L2 released a couple of eye-opening reports in 2010: “The Gen Y Prestige Brand Ranking,” followed by the “Digital IQ Index: Luxury.”

The first report asked close to 450 high-achieving and high-earning individuals with an average age of 28.5 to score “sentiment” for 105 iconic brands. They came from 45 countries, and 83 percent expected to earn more than $100,000 per year within 24 months.

Considering the generation’s response “the closest thing to a crystal ball for predicting a prestige brand’s long-term viability,” the report placed the Millennials as the “future” of luxury brands rather than their target market.

What L2 discovered was that the age group by and large considers itself “brand-conscious”; that it is more than willing to follow luxury brands on Facebook and Twitter and receive related e-mails; and that more than half of women purchase luxury goods via discount and retail sites, but only a third buy directly from brand sites.

The top five brands for women were Chanel, Ritz-Carlton, Four Seasons, Marc Jacobs and Cartier; for men: BMW, Ferrari, Porsche, Lamborghini and Audi.

L2 associate Tanuj Parikh says a commitment to making digital a “huge part of the strategy going forward” was a key differentiator for brands at the top, especially when those digital efforts are consistent with a brand’s heritage. Case studies from the report, called “Gen Y prodigies,” include the likes of Marc Jacobs, which offered behind-the-scenes tweets from its president and live online streams of the runway during Fashion Week 2010; and Audi, which introduced the compact, less-than-$25,000 A1 model (not available in North America) as an “entry point” for environmentally conscious young consumers, as well as creating mobile gaming apps and Facebook sneak peeks.

And then there’s Coach, whose recent Poppy Project won rave reviews for its collaboration with fashion blogger community “leaders.” Coach also was the first brand in the category to add user reviews to its site, further speaking to the Millennial Generation’s desire to be heard.

Parikh says the reports have been positively received by the brands involved — including those who were rated “challenged” or “feeble” in the Digital IQ Index.

“This industry has historically been perceived as one that has lacked rigor around the data-driven analysis of what worked and what didn’t,” he says. “The members we’ve signed up, the large cache that has opted in, is telling us, ‘We like the data and the insight it provides.’ They think it’s actionable.” Those in the lower categories, in particular, have been the “most eager grabbers” of the information, Parikh says, already looking for ways to call for increased internal resources.

And what that information is showing is that luxury may have been tied to the Baby Boomer generation for the last 20 to 30 years, but the home equity lines that helped make it possible don’t exist anymore. “Generation Y is the segment that will drive luxury,” Parikh says. “They’ll be the purchasers as well as the tastemakers.”

Implications for affluence
Pam Danziger, founder of the Pennsylvania boutique research firm Unity Marketing and author of the upcoming Putting the Luxe Back in Luxury, notes that the recent recession brought a lot of changes to the luxury consumer market. But in addition to surface decreases in spending during the downturn, there also has been an underlying attitudinal shift that will continue to impact the marketplace for years to come — especially in terms of the Baby Boomers, who are rapidly “aging out of the primary age of luxury acquisition.”

“As people mature, they change what’s important to them,” she says. “Their value systems change drastically. They’re often downsizing their homes and getting rid of stuff, so they’re not so materially focused.” This group helped bring about a boom in luxury spending. “They felt wealthy,” Danziger says. “The stock market was going up. Their homes’ values were growing and growing, and they were spending. But with the recession, all of that wealth went away. Reality hit, and now they’re having to spend against their real income.”

It might be natural to think the next wave, Generation X, would pick up the slack. But that group is so small compared to the generations that immediately precede and follow it, the experts say, that all bets are off.

As such, some retailers are hoping to hold on until the Millennials reach their full “window of affluence” — ages 35 to 54.

“But I don’t think you can bank on these young affluents becoming more materialistic,” Danziger says. “I’m not sure they’re going to be like any previous generation, because so far, they’re not.” For one thing, she says, the Millennials as a group are not marrying at the same rates as previous generations, and “that has serious implications for affluence,” she says. Dual-income households are much more likely to be able to afford the products offered in luxury categories.

Which is all the more reason, industry analysts say, that luxury brands must work hard now rather than simply hold on for the future. “The faster you can iterate and move,” Hurley says, “the better off you’re going to be. The world is changing at a faster pace, no question.”

Now that the country has entered a recovery phase, there’s a prime opportunity to reach what American Express Business Insights (AEBI) considers the “luxury newcomer” — those who are now trading up to high-quality products and services, even though they didn’t buy luxury before the recession. These newcomers represent 36 percent of luxury spend, and 43 percent of them come from Generations X and Y.

It’s enough to generate a mood of “cautious optimism,” says Ed Jay, AEBI senior vice president. “The introduction of this new customer set and a more even distribution of spending among active, occasional and aspirational shoppers have created a consumer market with significant spending potential.”

Not surprisingly, the newcomers’ spending channel of choice is online. Do note, however, that there’s also a rise in sites that allow rental of luxury goods —, — allowing new levels of “access” to prestige goods.

Pedraza believes that most consumers “still like to own their own luxury,” but he’s noted something else: a shift in the definition of the “luxury” shopping experience. Studies have shown that consumers under 40 often feel “perceived as lower spenders” by bricks-and-mortar store personnel, he says. Paradoxically, “they very often, but not always, are the ones who want to do things themselves.”

“In an ideal world, they will go into a luxury store, pick up a product, scan their card, put it in a bag themselves and go,” Pedraza says. “But a lot of luxury brands resist that, because they don’t think that’s providing a luxury experience.

“I would say that they have treated luxury a little bit as one-size-fits-all, and they haven’t yet transformed their cultures to take into account the needs of the Millennials and upcoming generations,” he says. “They know it’s important, but it’s like losing weight: You know you’ve got to do it, but you’re not eating less yet. It’s hard to transform, but they’re going to have to.”