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How Luxury Brands Are Surviving the Millennial Revolution

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No matter what way you may want to look at Millennials, there is no denying that they are changing all industries and forcing companies to think about how to do business. This is especially true for luxury brands, as Millennials and Generation Z will represent more than 40% of the overall luxury goods market by 2025, according to a Deloitte industry report.

At first glance, that doesn’t appear to be a good sign for luxury brands at all, due to the word “luxury” not being particularly synonymous with younger generations. Instead of being dynamic and innovation-driven companies that are always focused on the future, luxury brands are often built on tradition, legacy, and consistent standardization.

To make matters worse, younger people have smaller incomes and are facing more debt than prior generations. According to the Federal Reserve, the average student loan balance for a 25 year old in 2013 was $20,926, far higher than the $10,649 average in 2003.

Additionally, experiences are valued highly by Millennials, so spending money to go on a hiking trip or to a concert might take priority over a new designer item.

Last of all, there is an obvious trend towards technology, digital products, social media and e-commerce, which can easily come at the expense of many luxury brands’ foundations of using traditional materials and long-standing brick-and-mortar stores.

Consequently, luxury brands have been forced to adapt if they want to survive, especially as the purchasing power of Millennials continues to increase. There are clearly many factors working against them, but the luxury brands which have seen recent success have shown abilities to cater to Millennials and not remain stagnant.

Luxury Brand Success Stories

A prime example of this is American luxury apparel manufacturer Ralph Lauren (RL - Free Report) . The company announced a $400 million “Way Forward” Plan in 2016. The initiative focused on revamping products to increase desirability and get closer to the younger consumer.

In 2017, the company released further actions it would take to sustain the new plan, mainly moving to a “more cost-effective, flexible e-commerce platform.” Ralph Lauren’s aim is to create a global digital ecosystem that will improve the experience for the consumer.

The Millennial-oriented moves haven’t taken long to pay off for the company, as evidenced by the stock soaring 85% this year.

Another luxury fashion manufacturer, Michael Kors , has taken similar steps recently to stimulate growth. The company launched its own strategic plan last year called “Runway 2020”.

The plan likewise focuses on product innovation and customer experience, while the brand also established it would improve digital innovation and social media leadership. At the time of the Runway 2020 release in June 2017, the company had 52k subscribers on YouTube. That figure has almost tripled to 151k today. Over the same time period, the company’s stock price has also significantly increased—growing by 87%.

Shifts towards building brands which are built for the younger consumer haven’t just worked in luxury apparel; it has also been successful for Estée Lauder (EL - Free Report) , a luxury skincare and makeup producer. In 2016, the company made two major investments in prestige beauty brands targeting younger consumers, buying Too Faced for $1.45 billion and Becca Cosmetics for $200 million.

On the digital side, in July 2017, Estée Lauder produced a new Facebook Messenger bot that used customers’ cameras to let them virtually try on the brand’s lipsticks, which is an improvement to the overall shopping experience—a factor just as important, or even more so, than the product itself to Millennials.

These actions have propelled the company upwards as of late. The company’s stock has been rapidly rising recently, trading at an all-time high of $158.03 on June 15. Furthermore, Estée Lauder has a Zacks Consensus Estimate EPS of $4.46 per share for 2018—an increase of 28.5% from the prior year.

There have been various other victories within the luxury market, especially for brands that are specifically tailored towards Millennials. Canada Goose (GOOS - Free Report) and Lululemon athletica (LULU - Free Report) are two high-end apparel companies that are particularly well-liked by younger consumers and can be seen in abundance on any college campus.

After pricing its IPO at $12.78 per share in March 2017, Canada Goose’s stock is currently trading at $63.96. Lululemon has also performed well, and the company currently holds a Zacks Rank #1 (Strong Buy).

It comes as no surprise that the industry leader in terms of sales, LVMH Moët Hennessy Louis Vuitton SE (LVMUY - Free Report) , has also made strides in the same direction as others. In December 2017, the company launched a “virtual advisor” that answers questions regarding any Louis Vuitton products. Louis Vuitton is also second only to Gucci in terms of Instagram followers, with an astounding 25.8 million.

Bottom Line

There remains no doubt that many of the priorities of Millennials aren’t aligned with the perception that luxury brands have maintained throughout time. Nevertheless, Millennials will buy and thus create growth for luxury brands that are able to conform to their preferences, such as personalized experiences, sophisticated technology, and cutting-edge products.

The Luxury brands that will make the most progress moving forward are the ones that can best develop and implement digitally-focused strategic initiatives which strive for innovation and all-around brand modernization. For luxury brands, there is a direct correlation between appealing to Millennials and company prosperity.

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