While Gen Z will arguably be one of the most important consumer groups in the medium term as these consumers gain purchasing power, they will also form the backbone of economic growth and consumption in luxury goods and fashion in the next 10 years. Indeed, teamed with millennials, Gen Z-ers will drive global economic growth over the next decade and encourage business transformation. While every consumer group will play a role in the transformations across the consumer landscape, Gen Z-ers are proving to be early adaptors of these new behaviours. Among others, this will force luxury and fashion to meet their sustainable goals and promises and become more relevant to these consumers through the use of new technologies, loyalty, better communication and experiences across retail, marketing and hospitality.
Consumption patterns evolving as Gen Z-ers come of age
Generations Z and Alpha will account for 45% of the global population by 2030 and will be the largest target segment for luxury and fashion brands. These generations’ values and preferences are significantly different to those of their predecessors, and brands are being challenged to adapt their needs in terms of products, distribution, marketing and engagement.
Much like all generational cohorts, Gen Z-ers are witnessing inflation rates at their highest in decades in certain markets such as the US, the EU and the UK. These macro factors suggest that pricing sensitivity could be a long-term concern for this cohort, and that the Gen Z consumer's mindset of being value-driven and price-conscious is likely to impact their discretionary consumption patterns. Indeed, feeling the pinch of post-COVID-19 income decline and the cost-of-living crisis, Gen Z-ers look for ways to save where possible. Euromonitor’s Voice of the Consumer: Lifestyles Survey 2023 found that while Gen Z overindexed the global average when it came to plans to shop more in discount stores, when shopping for luxury and fashion features such as being “on trend”, brand heritage and being able to buy premium or luxury brands not only rated higher than the global average, but Gen Z also rated these higher than other drivers such as low price and value for money.
In the same breath, the COVID-19 pandemic brought a global reckoning across the luxury and fashion industries, and Gen Z consumers have reacted to the subsequent cost-of-living crisis by embracing alternative ways of accessing products, reducing unnecessary spending, seeking out budget-friendly options and turning to green activities, such as repairing, reselling, recycling and renting.
Gen Z pricing sensitivity continues, giving mass tiers an advantage but luxury opportunities to diversify
Global inflation has faced additional upward pressures since Russia’s invasion of Ukraine due to supply cuts, added volatility and rising energy, food and commodity prices. According to Euromonitor’s latest data, global inflation stood just under 8% in 2022 and is set to drop to just under 7% by the end of 2023, but all consumers and luxury and fashion businesses in both emerging and developed economies continue to feel the squeeze of rising prices. Although pent-up demand accumulated during the pandemic continues to help to sustain retail sales growth, due to the rising prices consumers can afford fewer luxury and discretionary items.
Gen Z-ers will continue to be price-conscious, which may be a growth barrier to the luxury fashion segments
Source: Euromonitor International
This, however, opens doors to introduce more diversified price points and entry-level products.
The UK is set to see the highest inflation level among the largest luxury goods markets by the end of 2023, driven by rising energy and commodity prices from the supply side. China’s zero-COVID policy and extended lockdown measures will now start to contribute further to the rising prices of input materials in 2023 and 2024. While China's inflation rate is set to stand at just 0.9% (the lowest rate among the largest luxury markets in 2023), by 2024 this rate is set to creep up to 2.4%. Given that China is the largest luxury market in 2023, luxury players should anticipate pricing sensitivity among consumers across generations, but particularly in Gen Z.
The rise of the influencer ecosystem in luxury and fashion driven by Gen Z
Gen Z-ers are immune to traditional advertising. Authenticity and social impact make a difference. They want to feel a genuine connection when engaging with brands and these outspoken luxury and fashion shoppers are not afraid to voice concerns. More than one third shared their opinions on social or political issues on social media last year.
Beauty and fashion industries are already touching global causes such as nature and ethical production by promoting their sustainable production and CSR initiatives, to address the need of Gen Z for finding a meaning and to create loyal brand advocates who are promoting their products with good grace.
Gen Z-ers buy values and experiences, not just luxury and fashion goods
Source: Euromonitor International
Gen Z consumers expect digital and physical luxury and fashion worlds to work together seamlessly
Gen Z is the first generation that grew up entirely in the digital age, making such consumers highly tech-savvy and reliant on digital platforms for information, communication and shopping. They expect seamless omnichannel shopping experiences as they transition between different channels and devices. Consistency across physical stores, online platforms and social media works best to ensure a cohesive and integrated brand experience.
Gen Z’s luxury and fashion consumer journey is heavily skewed towards the smartphone, social media, especially TikTok (Douyin in China), and early adoption of new technology and digital platforms (eg metaverse). That said, despite heavy dependence on digital, Gen Z shows a yearning for human interaction, which helps explain demand for a phygital approach to shopping.
Building emotional loyalty and nurturing brand advocates is the way forward for Gen Z
Building customer loyalty among this cohort, who like to experiment with different brands, can be difficult, especially in an oversaturated market. However, in a transactional market, the success of luxury and fashion brands depends on their ability to combine exclusivity, loyalty, quality and storytelling with an effective social media strategy.
Indeed, customer loyalty is transforming due to changing consumer preferences, technological advances and the e-commerce boom. Thanks to the new hyperconnected universe, a cost-of-living crisis and other economic headwinds, luxury and fashion brands are facing even tighter competition for consumers’ discretionary spending and hearts. While the overall affluent cohorts of the world value their families and physical wellness more than any other area, and, along with exclusivity, look for loyalty benefits which help them here, for the Gen Z consumer overall loyalty is more value- and purpose-based and tends to relate more to brands that support the causes they care about.
Learn more about Luxury, Fashion, and the Gen Z consumer in our report, What Fashion and Luxury Brands Should Know About Gen Z-ers.