State of Luxury Spend

The road ahead for the luxury shopping market looked a little dicey in 2020. With restrictions on both in-store shopping experiences and travel, sales plummeted by as much as 68% in some areas. As months went by and the global COVID-19 pandemic endured, nervous CEOs cautiously planned for the future of their brands.

As we look back on 2021, many voices in the industry wondered if luxury spend would recover. We now know the answer is a definite, "yes" as luxury spending for 2021 recovered and surpassed 2019's pre-pandemic numbers by 27%.

Key Takeaways:

• 2021 luxury spending recovered and exceeded 2019 levels.
• Average order value (AOV) led sales growth, supported by an increased trip count and eager customers to see some return to normalcy.
• Luxury shoppers still prefer in-person shopping experiences, despite initially embracing e-commerce at the pandemic's beginning.
• High-frequency customers drive the majority of luxury sales.

A rough 2020 leads to an astounding 2021

Luxury retail industry trends have been up and down–hitting rock bottom in March 2020 with a 68% drop as a global pandemic gripped the fears of shoppers around the world. And on top of that downturn, we watched stores temporarily close, and shoppers become reluctant to visit those stores that were open.

We also saw an abrupt halt to international travel, accounting for up to one-third of all luxury sales. Global travelers enjoy the allure of buying authentic luxury where it's made, so it felt like the luxury shopping industry would become strategically dismantled.

Some shoppers were giving luxury online shopping a try, but the industry outlook was bleak. Low retail sales left luxury brands buried in extra inventory–a problem that disproportionately hurts luxury brands. The fundamentals of supply and demand illustrate that when inventory is high, pricing is low.

Luxury brands rely on exclusivity, so typical retail tactics like steep discounts only work to devalue the brand. These brands knew the road would get bumpy; they braced for the worst but came out of the pandemic pleasantly surprised.

Luxury spending saw the first signs of recovery in June 2020, when the data began trending upward. Progress was slow at first, and both retailers and luxury brands anxiously watched as trip counts and average order volume steadily rose.

By the end 2021, cushioned by a healthier holiday spending season, luxury spend trends outperformed even the most optimistic predictions with $2.2B in growth. Luxury retail trends are showing promise for a strong and stable recovery, but it hasn't been equally distributed.

Luxury markets are prone to polarization. Luxury shopping is about authenticity, status, and self-esteem. Some brands–and products, are simply better at filling that need for consumers.

AOV tells the story

So, were consumers compensating for their feelings of pandemic-driven isolation and fear in 2021, or is this genuine growth? The story is in the data. Let's look at the factors contributing to the unexpected boom in luxury spending habits.

Cardlytics' first-party data identified average order volume (AOV) as the largest driver of increased spending. This means that shoppers were simply buying more on each shopping trip. There was also a notable increase in customer trips in 2021 compared to data from 2019, which supported the AOV-led growth.

A deep dive into the data shows luxury spending statistics on AOV took a nose-dive in the first two weeks of the COVID-19 pandemic. The average sale dropped from $308 to $175. And, at the lowest point, it dropped to $167 in May of 2020 before beginning a slow climb towards recovery. By the holiday shopping season, AOV was up–way up. By the end of 2021, the annual average had reached $350 per trip.

While e-commerce has been a big driver of change in other markets, luxury shopping was less affected before the pandemic. The in-store experience plays a pivotal role in what brings shoppers to luxury brands. The smell and touch of authentic, high-quality leather can't be replicated in a digital environment–at least not yet.

And a big part of the self-esteem boost that shoppers receive comes from being pampered by personal shoppers while strolling across shiny marble floors.

Luxury retail saw a spike in online shopping when mandates and public health concerns forced the hand of consumers, but it was temporary appeasement. As restrictions eased, shoppers returned to the stores in droves, craving that luxury shopping experience.

The data shows that the mix of shoppers in the store and online is about the same for 2021 as it was before the pandemic; let's take a look:

• 2019 Spending Mix: 57% in-store and 43% online.
• 2020 Spending Mix: 47% in-store and 53% online.
• 2021 Spending Mix: 57% in-store and 43% online.

While the mix shifted back in favor of in-person shopping, the volume of online sales for luxury brands is still significant. The digital age provides a valuable opportunity to connect with new consumers differently.

As we look towards the next year, online sales are anticipated to grow–leaving luxury brands with dual commitments to extend the same level of luxury service both in-person and online.

Must-Have Luxury Goods with the Most Growth in 2021

Luxury retail performance can be unpredictable even in a strong market because brand affinity has always been tied to public perception. A new era of socially-conscious consumers is now more powerful than ever before in determining which brands are in–and which ones are out. This provides some insight into luxury spending growth in 2021.

As surprised as many luxury brands were by this growth, many are eager to know where consumer spending is increasing. The top-performing categories included women's and children's apparel, jewelry, and accessories. Across the retail industry, luxury and value brands saw the most growth in 2021, attracting renewed interest and inviting disruption from new competitors.

For one, Amazon has entered the market in big ways–first, they opened their Common Threads storefronts to showcase the work of individual designers, and then they launched a luxury brands mobile app exclusively for Prime members.

Previously untouchable brand opportunities are back on the market, and like-it-or-not, the luxury retail sector is embracing new ways to connect with customers in a digital world.

The luxury shopping market is evolving

Two more critical pieces of data that will shape the future of luxury retail trends are consumer base and loyalty. Overall, the number of luxury shoppers has increased 2% since 2019. It seems that more consumers are craving authentic experiences that only luxury brands can deliver.However, there's a catch–a new generation of consumers are showing less brand loyalty overall. They're not just looking for a brand name—consumers are looking for values alignment and are willing to shop where they can get what they want.

As much as 65% of customers making multiple luxury purchases are shopping with two or more different brands. This means that quality and reputation only go so far–even in the luxury goods market. Brands face more pressure to cultivate and maintain customer relationships as we move beyond the pandemic.

What to expect in 2022

Luxury brands can expect to see trends in continued growth. Data-driven predictions on consumer spend are modeling an anticipated growth of 25% compared to 2019, outperforming non-luxury sectors by as much as five times the growth.

There will always be a strong market for bargain hunters and value-minded shoppers, but only the luxury retail market is forecasted with significant growth for the coming year.

The market is ripe with opportunity for brands that are able to keep pace with consumer needs and remain relevant in a changing world. Modern shoppers expect the convenience of omnichannel accessibility–interacting with brands when and how they choose.

Shoppers demand values alignment on important issues like sustainability and inclusivity. And at the same time, they expect the same level of luxe quality goods and services that define the luxury shopping experience.

From technology to social responsibility, luxury brands have more on their plate than ever before. The good news is, Cardlytics can help. Learn about how we can provide you with invaluable data-driven insights to help shape your marketing strategy and align your brand for growth.