Is the word ‘luxury’ one of the most over-used in the English language? Given that almost every type of good and service available now has a high-end version, I can’t help thinking that ‘luxury’ is in danger of losing its currency. Over the past year, having carried out a number of CEO searches in luxury hospitality, leisure, travel and retail, I’ve thought long and hard about where the luxury industry is heading. The trend towards ‘experiential luxury’ is clear, though I believe the very definition of luxury in the context of experiences is splintering.
Shifting Luxury Consumption
According to a report by Bain, the management consultancy, in 2018 the global luxury market grew by 5% to a staggering $1.4 trillion globally! Interestingly, Generations Y and Z accounted for 47% of luxury consumers, 33% of luxury purchases and virtually 100% of the market’s growth. While much of the growth in the sector has been in luxury goods, luxury experiences are also on the rise: luxury hospitality up 5%; gourmet food and fine dining up 6%; luxury cruises up 7%; with luxury expeditions booming.
These figures are corroborated by a report by rival firm Boston Consulting Group, which confirms that nearly half of all consumers, and a majority of Millennials, say they’re buying fewer luxury products and purchasing more luxury experiences. According to BCG, by 2022 the experiential segment is forecast to account for nearly two-thirds of the total luxury market, representing a fundamental shift in consumer behaviour – from ‘owning’ to ‘being’.
A Sound Investment?
In light of the above, it should come as no surprise that the luxury experiences sector is an attractive one to invest in. Back in December 2018, LVMH agreed to buy luxury hotel-to-train operator Belmond, and last month IHG swooped on luxury resort and spa operator Six Senses. Furthermore, we have seen luxury goods groups such including Armani, Bulgari, Ferragamo and Fendi continue their push into branded hotels; hotel and resorts groups such as Four Seasons, Mandarin Oriental and Aman Resorts branch out into branded residences; the rise of super-premium gym operators such as Equinox; and a proliferation of private members’ clubs across the world’s major cities.
On the one hand, the swing from spending on goods to services is largely a response to the fact that we’re long past ‘peak stuff’. In the less-is-more age of Marie Kondo and Minimalism: A Documentary About The Important Things, goods alone no longer satisfy the way they once did, particularly not sophisticated consumers in more mature markets such as Europe and North America.
On the other, from a business perspective, it’s easier for a luxury brand to enter the less mature, more fragmented experiences category, where few big brands dominate, and grow market share than it is in luxury goods, which remains dominated by a relatively small number of long-established, successful brands and groups. Maybe this is why haute couture to luxury wines and spirits maker LVMH chose to make significant inroads into the luxury experiences market by buying Belmond, rather than simply spending more on slugging it out with Kering, owner of the seemingly unstoppable Gucci? Part of me wonders, also, whether LVMH and others have spotted the 1+1=3 sum that is product plus experience equals profit?
Questions… and Contradictions
While the macro trend of an ever-expanding luxury experiences sector is evident, there are some important questions to consider. Can brands such as Six Senses really continue to be run according to the purist, ‘no-shoes’ philosophy the founders intended? And might owners such as IHG be happy to lose some existing customers in search of a broader audience? Will we experience a Mercedes-isation of the luxury experiences market, in which capacity increases, participation expands and entry-level prices fall, at the expense of exclusivity? While I’m not sure if I’d have ever called Soho House a luxury experience, surely its increasing ubiquity renders it ever less exclusive – dare I say very much like a Prada purse?
I would also argue that the word luxury, when applied to experiences, is wholly subjective. Not only does it mean something different by market, as an enlightening report by Amadeus shows it has different connotations depending on which ‘luxury tribe’ you belong to in the same market. Thus, for some, luxury means high-touch, for others low-touch; for some, luxury means high-tech, for others low-tech; and for some, luxury means excess, for others simplicity.
While certain markets and luxury tribes remain traditionally material in their expectations as regards luxury services – white gloves, marble floors and gold taps – and there will surely always be a place for conventional decadence, in the era of Airbnb (which itself has long since diversified into all manner of experiences in addition to lodging), there are newer, pared-down, personalised concepts of luxury that stretch well beyond materialism, glamour and indulgence. And in these, providers listen and suggest, rather than tell or dictate.
The New Luxury?
To my mind, the sophisticated, modern-day luxury experience seeker is in search of ‘luxuries of time and space’. These might include an exclusive, highly tailored, transformative, once-in-a-lifetime experience with unparalleled service that no-one else could possibly enjoy; or a quieter, authentic experience based on emotional connections with friends, or interactions with locals, the aim of which could be physical enrichment, emotional fulfilment or intellectual nourishment.
In a world in which consumers are shifting from ‘owning’ to ‘being’, luxury experiences, then, are very much in the eye of the beholder. Which would you prefer? Tea at The Ritz? A personally tailored safari in which every meal is cooked by your favourite Michelin-starred chef? Or a trip to the moon on Virgin Galactic?! Some things don’t change, though: dare I suggest that in our Instagram-dominated age, however understated we want our luxury experience to be, bragging rights – fundamentally rooted in human nature – will remain? It’s just that what we want to show the world has fundamentally, and irrevocably, changed.