Gucci’s collaboration with Kai of K-pop band Exo, is part of a trend for luxury houses to partner with brands relevant and admired by Gen Z. (Photo: South China Morning Post)

SOUTH KOREA – BTS just became Louis Vuitton ambassadors, Exo’s Kai models for Gucci and Blackpink’s members each represent Chanel, Saint Laurent, Celine and Dior. Dior created the Air Dior line with Nike, while the Hermès Apple Watch and branded Apple AirTags opened up a whole new audience to the luxury maison.

The luxury industry is undergoing a big reinvention: getting ready for Generation Z. Looking at the brands that exceeded the expectations of analysts in their Q1 earning calls – namely Louis Vuitton, Dior, Hermès and Gucci – they have a couple of things in common: a strong appeal to Chinese consumers and a strong appeal to young consumers.

In the first quarter of 2021, luxury powerhouses LVMH, Kering and Hermès all outperformed the same quarter of 2019, setting records even while the pandemic is not yet over. This shows the power of luxury as the growth engine of the overall economy. As after the economic meltdown of 2008, I predict luxury will be the first segment to emerge out of the crisis, and that growth over the next decade will be unprecedented.

One dramatic difference to the years post 2008 is the rise of Gen Z and of China. Both will shape the luxury industry like nothing before. And one brutal consequence will be that not all brands will be winners as the segment grows – 50 per cent or more may disappear.

The strategies of winners and losers could not be more different. During the pandemic, many luxury brands focused on promotions, hoping to use low prices to entice brand fans all over the world who were in lockdown and uncertain about their future.

The discounts did the opposite of what those brands hoped: they destroyed brand equity and annoyed fans who were loyal and willing to pay the full price. Another common trait of underperforming brands is that they either ignored Gen Z or they tried to please them at all cost, by losing their identity.

Winning brands, such as Louis Vuitton or Hermes, did exactly the opposite. They used the pandemic to connect more with their customers, creating extreme value. Instead of promoting discounts, they increased prices. And they pulled off collaborations that were surprising, delighting and inspiring for their brand audiences.

I wrote in a previous Inside Luxury column about the collaboration between Dior and Nike, creating the limited-edition Air Dior line. This move, masterminded by Dior men’s creative director Kim Jones and CEO Pietro Beccari, was genius in many aspects – it showed that streetwear is now not only relevant in luxury fashion, but a central driver of desire.

This reflects that young, affluent consumers see trainers not only as something to wear, but also as an investment. When five million people reportedly tried to buy these shoes at prices that were originally around US$2,000, it shows how the market for collecting and investing has changed. Some Gen Zers may be less interested in gold, jewellery and fine watches, but they understand the value proposition and the investment potential of rare sneakers.

Those lucky customers that were able to buy a pair of the Air Dior now have shoes valued on StockX between US$8,000 and several million dollars for a rare US size 16. The sneaker hype is not only prevalent in Europe or North America, but especially hot in China and Japan.

Hermes is in my view one of the most disruptive luxury brands and this is part of their appeal. The Hermes Apple Watch and the extremely profitable model of selling watch bands gave the brand access to a customer group who otherwise may never have considered Hermes.

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