A version of this article was published today at AdAge.
Experiences over possessions. The luxury’s new mantra penetrated everything from travel and hospitality to retail and technology. According to 2014 BCG Report, $460 billion was spent on unique travel adventures, compared to $170 billion spent on personal luxury goods.
With experiential luxury sector consistently outperforming any other sector of luxury goods, luxury brands are challenged to become purveyors of self-expression and lifestyle.
Sharing economy can help.
Originally conceived as a way to fix market inefficiencies between supply and demand, sharing economy became a $15 billion market in 2014. In luxury, sharing economy existed even before the digital bandwagon. NetJets, the pioneer in the space with its fractional ownership model, were founded back in 1986. Private Residence Clubs emerged in the Rocky Mountains in the early ’90. Destination Clubs followed. It turns out that very successful and very affluent people are also very rational: they understand the costs and benefits of owning an asset versus simply using it.
Beyond this behavioral economics argument, there is something else. Our friends would rather hear about that ice marathon we ran in Alaska than about yet another pair of Louboutins we bought. Hunting for a unique experience makes us unique, much more than owning material goods does.
Traditional luxury imagery may have been a reflection of our identity, but experiential luxury is our identity. Things we do shape who we are, the lifestyle we lead, and the choices we make. They are our personal Weltenschauug.
This new MO of the rich makes the next generation of affluents seek a luxury cabin in Napa one weekend, a private island the next, and the NYC townhouse the third — with a wardrobe to match. They can choose to get to their destination with a private jet, or a chopper, a yacht or a Lamborghini. In the event of hosting a private dinner at a distant location, high-end artworks are theirs to rent as well as is a Rolex of choice, if in need of making an impression.
The experience is going to be different each time, and that kind of uniqueness and individuality is exactly what the next-gen of affluents is looking for.
“Rental brands are gaining popularity, demonstrating the new luxury consumer’s desire to be spontaneous, without the pressure of permanent ownership,” says Nicole Victor, Partner and SVP of Planning at NYC-based agency Rumble Fox. She adds, “As the notion of ownership of goods has changed and the desire to own goods like homes and cars has decreased significantly among younger generations, luxury brands will have to find a place in the new sharing, less acquisitive generation.”
This less acquisitive generation comes from the Sillicon Valley and from the tech-savvy, environmentally-conscious ranks of millennials. “I just want access to luxury — I don’t want to own it,” noted a young financial services executive. This statement echoes both the sentiment of the generation and the codes of modern luxury: attainability, service, timeliness and experience.
Interestingly enough, this is what sharing economy is about. It’s main promise isn’t about frugality. It’s about pushing the boundaries of customers’ expectations of what a good service is. The seamlessness, flexibility and convenience that User or Rent the Runway provide is something that new affluents now came to expect and demand from their legacy luxury brands as well.
The white-glove, invisible concierge, one-step-ahead-of-you service without the burdens of ownership, like worrying about depreciating assets, is how sharing economy is going to win in luxury.
The luxury of sharing may attract those who want to try out different things before they invest money into a high-end purchase. It may attract a restless, easily-bored globe-trotters. It may attract honeymooners looking for a week of luxury. It may attract experience-seekers set on actively curating their own identity. Or it may attract those old-school affluents who did their math and concluded that they are better off renting.
In all likelihood, it will continue to attract all of the above, lending the luxury sector’s nascent sharing economy market a high growth potential. Its emerging business models and revenue streams will revolve around offering products on demand as a service (versus just selling them), partnerships and tie-ups, motivating a marketplace, and new service value-adds. Today, due to legacy brands’ corporate inertia, this market is exposed to newcomers, which have been quick to seize the opportunity. These smart upstarts are well on their road to relevancy with the next generation of affluents as they redefine what the modern luxury is and how we enjoy it.