Luxury Brands in the Face of Change
The luxury industry is at a crossroads. The sluggish growth of the sector over the past several years has left many luxury brands rethinking their strategy. According to a report by Publicis Media titled Battleground: Legacy Luxury vs. New Luxury Order, there are a variety of factors to account for the global downturn: weak oil prices, geopolitical tensions, and the devaluation of Chinese and Russian currencies, two major drivers of luxury good sales.
But these macroeconomic woes are just the tip of the iceberg. Arguably, the most significant source of disruption to the luxury industry is the cultural shift away from ‘legacy’ luxury—with its emphasis on tradition, timelessness and conspicuous consumption—toward a ‘new’ luxury, which favors novelty, conscientiousness and experiences over materialistic pursuits. Luxury brands all over the world have to grapple with these changes and this rings true in the Gulf as well, and as Publicis’ report points out, particularly in the flagship regions of the KSA and UAE.
And while it is clear that attitudes are changing, what to do about it is less clear. The challenge ultimately stems from the fact that consumer attitudes toward luxury are ambiguous and at times, contradictory. Further complicating matters is the inherent nuances of each region; making a one-size-fits-all strategy ineffective.
To be sure, the KSA and UAE share similar market trends such as the rise of women in the workforce, growing e-commerce, smaller family units and an embrace of the on-demand economy. In both markets, as Publicis found, growth has been driven by experiential luxury, an emphasis on experience, storytelling and personalization. There is also a push toward a ‘rent-not-own’ mentality. Another similarity between these two regions is the growing stigma against extreme shows of wealth. The research shows that for many in the region, ‘bling’ is antagonizing and being perceived as ‘nouveau riche’ is embarrassing. But this does not automatically mean that luxury brands need to adopt an ‘out with the old and in with the new’ course of action.
On the contrary, luxury brands need to understand the mixed nature of attitudes toward luxury. To gain a clear picture of this ambiguity, consumer attitudes can be broken down into three components: how consumers feel, how they act and how they think.
Take the case of affluent consumers of the KSA. On a cognitive level, the evidence suggests they cling to the notion of ‘legacy’ luxury; however their affective and behavioral attitudes have shifted toward a preference for ‘new’ luxury. Indeed, adventure, culinary and cultural travels are rising among KSA buyers. The mixed- attitude conundrum is also present in the UAE but it expressed differently than the KSA. Affluent consumers in the UAE are emotionally invested in ‘new’ luxury but behaviorally and cognitively they lean toward ‘legacy’ luxury. Indeed the UAE is seeing a growing entrepreneurial mindset, a trend toward high-end hipster culture and minimalism. Social media influencers play a big role in this market and have a strong impact on how UAE consumers feel about luxury.
Luxury brands need to leverage their understanding of these contradictions and distinguish between beliefs, attitudes and behaviors. There are a several strategies that are effective for both markets. The first is for luxury brands to become comfortable with the dissonance. The second is to think short term—considering the fact that we are in a transition period with respect to attitudes toward luxury; short-term goals are easier to craft and will increase a company’s agility. The third is to build on experiences. And the fourth is to appeal to emotions.
More specifically, when it comes to the KSA, the most effective strategy in the medium term should be to appeal to ‘new’ luxury and in the short term to appeal to ‘legacy’ luxury. In the UAE, however, the best strategy is to capitalize on the appeal of ‘legacy’ luxury in the medium term and embrace the transition to ‘new’ luxury in the long term.
In the final analysis, in order for luxury brands to remain profitable and drive sales, they need to have an awareness of the appeals of both ‘new’ and ‘legacy’ luxury embedded within their strategy. As they approach this crossroads, they need to carve a path that straddles both old and new and hits a delicate balance between the forces of continuity and change.