As millennials reach their prime spending years, the luxury retail industry is innovating and adapting to a new generation of consumers. From online apps to seasonless collections, forward-thinking brands are fashioning a way to appeal to an increasingly demanding clientele.
On a freezing winter’s day in New York, the glass-fronted split-level DKNY flagship store on 60th and Madison looks like the perfect place to duck into for half an hour to warm up while enjoying one of Manhattan’s fashion icons. The windows are full of the latest dark looks for bright New York nights. At least, that’s what the image on Google Earth showed before I set out in the cold. But by the time I get there I find the doors are locked. DKNY’s signature store in midtown is closed for good. LVMH, which bought the label in 2001, has sold it and the new owner – G-III Apparel Group – is moving away from bricks and mortar.
After generations of boutique-led strategies, the fashion industry is having to adapt. People simply aren’t shopping – at least not the way they used to, especially millennials. Consumers who reached adulthood around the year 2000 are a new, different, and challenging breed for luxury brands to target, and their evolving consumption habits are having a big impact on the way companies do business.
A radical rethink
Thanks to new technology, notably e-tailing and Instagram, millennials want faster-than-ever fast fashion. The idea of waiting days, let alone months, for the latest ‘this’ or ‘that’ is anathema. See now, buy now – ideally with a click or two on a mobile device – is the future. Demna Gvasalia, head of the Vetements collective and also the recently appointed Artistic Director of Balenciaga, says designers have to be “a machine of ideas that produces new things every three months, so the client isn’t bored”.
In a radical rethink of the fashion calendar, Burberry’s Chief Creative and Chief Executive Officer, Christopher Bailey, announced last year that the brand would combine its men’s and women’s shows into two annual runway events, with ‘seasonless’ collections available to buy immediately after each show.
Fashion shows had long been industry events for press and buyers only to preview collections. But the rise of digital media has blown apart that private world. Runway shows, streamed live, are now powerful consumer marketing events. Burberry has 42 million social media followers. Brands know they have to convert that reach and the buzz their shows generate into sales. This means that consumers must be able to get what they see the moment the show is over.
Bailey describes the notion of ‘see now, buy now’ as “a natural thing... It’s always felt a little alien, inviting people from around the world to tune in and to watch; to Instagram, share, and like, and all those things, but then not be able to buy it, or look at it, until four to six months later.” More than 30 labels, including Tom Ford, Tommy Hilfiger, Ralph Lauren, Hugo Boss, Vivienne Westwood, and Paul Smith, agree with Bailey and have followed his move. The McKinsey and Business of Fashion report forecasts that, driven by ‘see now, buy now’, overall annual online sales of luxury fashion will increase fourfold to 12 per cent of total sales in 2020, from just 3 per cent in 2010.
Driving the e-tailing revolution
‘See now, buy now’ is not the only thing driving online sales and causing brands to diversify away from bricks and mortar. Millennials have grown up with the Internet and, as the first generation of digital natives, they are adopting digital commerce en masse. According to Julius Baer’s Next Generation research analysts Fabiano Vallesi and Alberto Perucchini, millennials – in addition to the generation born after the year 2000, known as Gen Z – will be “the key shapers of global consumption growth over the next two decades”. Digital commerce will continue to grow thanks to “continuing improvements to the online customer experience, enhanced e-logistics, the rise of ‘omni-channel’ shopping from physical to online to mobile, and sales- and retention-supportive auxiliary technologies, such as artificial intelligence, machine learning, and Big Data analytics”.
Even though millennials want it fast and on the move, they also prefer to know that their brand of choice has sound ethics – that it not only creates styles that look good but also does, at least some, good. From understanding the factories used to produce the items in their wardrobes to the materials chosen, millennials are looking for transparency from their brands, and indeed, a brand they feel they can get behind.
Here, start-ups often have the edge over the traditional brands, where mystique is part of their appeal. Luxury basics brand Everlane, created in 2010 by the then 25-year-old computer engineering and economics graduate Michael Preysman, is tackling the need for transparency by simply being transparent. On its website, there is an explanation of the manufacturing costs of each item, broken down into the price of raw materials, labour, and import duties. Everlane is tapping into the millennial desire to feel connected to their purchases and the brands they buy from. By getting more information about the items they buy – be it a cashmere jumper or a silk shirt – and stories and photographs from the factories producing those items, consumers have a greater sense of ownership. Additionally, Everlane gives consumers the opportunity to ‘choose what you pay’ on certain items, creating a direct feedback loop with its customers when it comes to value for money.
The ’fewer but better’ mentality
Discernible value is important for a generation that is buying with a ‘fewer but better’ mindset. Millennials expect the items that they do buy to work much harder for them in terms of lifetime value, durability, ethical production, and the integration of technology – from wearables and apps to intelligent fabrics and clever engineering. They also want their items to work harder for them in terms of individuality, so they are prepared to seek out – and shell out for – personalised and one-of-a-kind items. Of course, this was once the very essence of luxury, but as ready-to-wear replaced couture, one-off pieces became a rarity. While bespoke options from the traditional luxury brands remain the preserve of the very few, many brands are now offering personalisation services. This more accessible option ranges from hand-painted monogramming at Louis Vuitton, Goyard, and Bottega Veneta to in-store hot-stamping at Valentino and Fendi.
Whether it is the need for a small but hard-working capsule wardrobe, or a preference for the technically innovative and visually unique, understanding the millennial mindset is key to capturing the economic potential of the world’s largest and most able-to-spend generation. As even the most traditional brands show signs of learning from the new upstarts to fashion a future with millennial consumers, the retail industry is proactively embracing the ‘always on, always online’ millennial lifestyle. Indeed, as I get back to my hotel after my abortive trip to DKNY, I read that the brand has just become the first American label to partner with leading e-tail platform Farfetch’s Black & White division, which leverages Farfetch’s expertise and success to create bespoke e-commerce platforms for brands. DKNY’s Madison Avenue flagship store may be no more, but the brand is suiting and rebooting for generation 3.0.
All companies named in this report are listed for illustrative purposes only, and should not be mistaken for an investment recommendation.