Luxury brands that reject resale risk losing out, says study
According to a new report from McKinsey, exploring the rapidly growing resale market not only opens a new revenue stream for luxury labels but could also have a positive effect on brand loyalty and desirability for buyers.
As pointed out by the study, the global luxury resale market is already estimated to be worth between $25 billion and $30 billion, with many industry observers expecting the sector to see an annual growth rate in the range of 10% to 15% over the next decade.
It’s little surprise, then, that some luxury brands have chosen to make their own incursions into the market. Gucci, for example, has partnered with online resale platform The RealReal to recycle and upcycle its products, while Switzerland’s Richemont has acquired UK-based watch marketplace Watchfinder, and French luxury giant Kering has invested in Vestiaire Collective.
Many brands, though, remain unsure as to how best to deal with the phenomenon, with worries arising around jealously guarded brand identities and the potential impact on margins. According to McKinsey, however, these companies should be more concerned about letting an exciting growth opportunity slip through their fingers.
“Our findings confirm the appeal of the resale trade: done prudently, brand entry should not erode margins, and would result in only limited cannibalization,” explains the report. “What’s clear is that luxury resale is here to stay—and those brands that choose not to participate risk missing out on a significant opportunity.”
McKinsey highlights that the entry of luxury brands into the resale market can even have a positive effect on consumers’ perceptions of the businesses, even if they themselves only buy new clothes. 54% of new-product buyers surveyed by the firm agreed that, as long as customer experience remained consistent, their perceptions concerning the desirability of a luxury brand that had expanded into resale would be positive or, at least, not change. By contrast, only 5% disagreed with the statement.
46% of the new-product buyers surveyed by McKinsey also agreed with the following statement, “brands directly selling or supporting shops/platforms that sell pre-owned product will not change my perception of the brand,” while another 46% said that they might buy more new products from luxury brands offering pre-owned products in the future.
As highlighted by the report, however, companies should bear in mind that each national market is different. Indeed, while consumers in both France and the United States gave largely positive responses to the above questions, Japanese consumers had a markedly negative reaction to the idea of luxury brands moving into pre-owned goods.
Currently, the two largest markets for pre-owned luxury are the European Union and the U.S., with China also accounting for around 10% of the global market.
If luxury brands want to engage with resale in a meaningful way, they also need to understand the reasons driving consumers to shop for pre-owned products. On this front, McKinsey’s research revealed that 41% of pre-owned-luxury buyers buy second-hand products because this gives them access to hard-to-find products or pieces that are no longer available. 40% also cited sustainability as a reason for going pre-owned, while for 36% it is a financial choice which allows them either to save money or simply afford the desired product in the first place.
With three-quarters of pre-owned luxury buyers also acting as resellers, it’s important for brands exploring resale to consider the needs and motivations of this portion of the community as well. In particular, the study highlights that 41% of resellers choose to sell their pre-owned products in order to free up closet space, while 36% said that they had sold items because their style had changed.
29% said that they regularly separate with pieces from previous seasons and that resale is part of this process, with 28% also saying that they wanted to support sustainability. 26% said that they engage in resale in order to get money or credit to spend on more premium products.
The data presented by the study therefore reveals a cyclical market made up of buyers and sellers with distinct but overlapping motivations. McKinsey suggests that luxury brands wishing to move into resale “might find ways to appeal to specific client segments,” organizing the market more efficiently for collectors, or streamlining the trade-in process for consumers looking to sell product from last season in order to buy pieces from the latest collection.
“The luxury resale market holds great promise for both customers and brands,” concludes the report. “For brands, if they choose to participate, it is a way to expand their offerings, appeal to committed client segments, stay abreast of digital innovation, and reinforce their sustainability efforts—if they can find ways to add meaningful value to loyal customers’ experience.”
McKinsey’s report is based on consumer research conducted in North America, the EU and Asia over the last three months.
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