The shift from owning a luxury to experiencing a luxury is accelerating—and many providers of high-end goods such as watches and handbags may soon miss out on a huge growth opportunity if they don’t get smart about their customers’ new inclinations.

That’s one of the key findings in LuxeRedux: Raising the Bar for Selling of Luxuries, the latest report on global luxury markets from The Boston Consulting Group (BCG.) The research behind the report shows that experiential luxury now makes up almost 55 percent of total luxury spending worldwide and, year on year, has grown 50% faster than sales of luxury goods. Even in brand-obsessed China, where personal luxury goods serve as a strong badge of status and success—with sales surging 22% annually—experiential luxury dominates, growing at 28% each year.

Cheval Blanc hotel in France.
Courtesy: LVMH

“More and more luxury shoppers tell us they love experiences that make them feel pampered,”said Klaus Kessler, Senior Partner and Managing Director at BCG’s offices in the Middle East. “But if luxury-goods players are to capitalise on the experience trend, they have to move quickly and forcefully. To date, very few have been successful in adding experiential elements to their offerings, websites, or in-store execution. While the lack of such elements may not yet be hurting the providers’ financials, it is a missed opportunity to boost performance.”

In a survey of approximately 1,000 affluent people in eight developed markets (France, Germany, Italy, Japan, South Korea, Spain, the UK, and the US) and the four emerging BRIC countries (Brazil, Russia, India, and China), BCG, working with Ipsos, a research specialist, and the International Luxury Business Association, found that aggregate annual spending on what those consumers described as luxuries now tops USD 1.4 trillion. This includes more than USD 770 billion on luxury experiences, close to USD 350 billion on luxury cars, and the rest on personal luxury goods such as watches, handbags, and shoes.

The business of luxury experiences is by no means limited to exclusive art, safaris, and spas. Some hospitals offer deluxe accommodations—with butlers, specialty chefs, and marble baths—while some airlines are starting to offer private suites, and some luxury high-rise apartment buildings are featuring movie-screening rooms and virtual-golf facilities.

Four trends are driving the move toward experiential luxury:

1)       The dictates of demographics. In developed economies such as the US. Japan, and Europe, consumers who drove the luxury boom in the 1990s are now beginning to retire. They have reached a stage in life when they no longer need nor want to own new “things”—so they are primary customers for experiential-luxury offerings.

2)       Changes in consumption patterns. When middle-class consumers in rapidly developing markets become more affluent and first buy into luxury, they are drawn to long-lasting goods with reputable brands. But over time, they tend to move from accumulating material goods to buying new experiences—and this is reflected in recent growth rates for experiential-luxury spending.

3)       Generation Y does things differently. Members of Generation Y—today’s late teens and twenty-somethings—tend to define themselves more by what they have done and experienced than by what they own. They are drawn to instant pleasure and lavish experiences—helicopter snowboarding in Alaska or a weekend shopping spree in Paris, for example.

4)       Quest for lasting satisfaction. Consumers indicate that they are seeking a greater sense of purpose and satisfaction, and luxury experiences often fulfill those wishes more strongly than do purchases of luxury things.

“All over the world, luxury shoppers tell us they’d rather spend more on experiences than on clothes and jewelry. They’ve gone from all my friends and I wear Cartier to I cherish spa days with my friends, said Aldous Mitchell, Principal at BCG Middle East said. “Although experiences are more intangible than an item, consumers consider them more memorable.”

Leading providers of luxury goods are starting to catch on—albeit cautiously. Examples include:

  • LVMH, one of the world’s largest luxury companies, is developing its Cheval Blanc hotel franchise; there is already one Cheval Blanc hotel in Courchevel, a French ski resort, and another in the Maldives, and LVMH plans to open locations in Oman and Egypt in 2012.
  • BMW, the German automaker, was one of the first high-end carmakers to turn the experience of waiting for delivery of a new car from frustrating ordeal into fun-filled activity: buyers of BMW’s Mini Cooper cars receive new-owner updates about the assembly of their car and its journey from the factory.
  • IWC, the Swiss watchmaker, which has a watch museum at its headquarters, promotes its Pilot’s watches in its flagship store in Hong Kong by offering customers a “ride” in a flight simulator with an extra-large screen and surround sound.

GCC Insights

According to BCG, the GCC is yet to realise its full potential as a luxury tourist hub. Dr. Klaus Kessler, Senior Partner and Managing Director at BCG’s offices in the Middle East said: “The ever increasing importance of experiential luxury puts the GCC countries in a very good position, especially in terms of their actively developing tourism offerings. Leveraging the uniqueness of recent 5-star-plus hotel developments, luxury spas, luxury malls and upcoming cultural heritage assets will allow the GCC countries to compete successfully in these market segments. Therefore the global trend towards experiential luxury is of significant relevance to GCC service providers. In addition, local units of international luxury brands can expect continuing growth in sales of physical luxury goods to inbound luxury travelers. Dubai’s luxury tourist flow from Russia, China and Western Europe during the winter months is a strong example of this influx.”

Some other GCC insights include:

  • Innovation is required within the store

Retailers need to bring back curiosity and excitement amongst savvy local luxury customers who are frequently inundated with marketing messages. Patek Phillipe’s mobile museum at Madinat Jumeirah, Dubai, last year is good example of this. Conversely, other retailers are bringing the store to the VIP customer, for instance, with private fashion viewings, to further personalise haute couture.

  • Local service providers can benefit more from GCC residents’ luxury trips abroad

Service providers, such as luxury concierge providers, have not yet met the demand from local GCC travelers for premium services when they head out to locations such as London, Paris and the South of France, especially during the summer months. This is an untapped segment.

  • The region enjoys customisation more than any other

From carsto wrist watches, customisation is a significant trend in the GCC region and one that is likely to continue in the future.

  • Branding can afford to be more aggressive and traditional in the region, for now 

While experiential luxury gains momentum around the world and the GCC, traditional branding will also remain strong in the region owing to its unique socio-economic standing and the type of inbound tourism it attracts. Aldous Mitchell, Principal at BCG Middle East said: “For instance, the region draws a large number of Russian and Chinese tourists who are typically much more inclined towards product luxury than some of the more mature markets. In addition, conspicuous consumption is much more acceptable in the GCC, as compared to Europe and the US, where economic troubles have attached a certain degree of stigma to extravagance.”

A copy of the report can be downloaded at www.bcgperspectives.com.

Related posts:

  1. Healthy growth in global luxury goods sales in 2011
  2. UAE top venue for high-end luxury exhibitions
  3. Trade licences rise 14% in May
  4. Trade in fruits and vegetables on a rise in the Middle East
  5. Rise in demand for premium residential projects