BCG’s Néstor Hap on Young Brands: “Profitability is Key in Growth”

Identity. This is the concept that Nestor Hap, partner and associate director of fashion and luxury at Boston Consulting Group, would place at the heart of fashion brands’ strategies in their race to win over younger buyers. Without a strong, unique and, above all, credible personality, fashion has nothing to do, especially with the Z and Alpha generations. With a language that is difficult to imitate and a meteoric progression in many cases, the upstarts still have to learn from the historical brands how to not die of success and remain profitable over time.

Question: It is said that younger generations are more unfaithful or less attached to a particular brand. Hasn’t this always been the case?

Answer: It’s a matter of degrees of loyalty. Clearly, Generation Z and Generation Alpha are less loyal. When you ask millennials and earlier generations if they always or mostly buy the same brand, about 65% say yes. Among Gen Z and Alpha, this percentage drops to 45%. There is a 20-point difference. So, there is still brand loyalty, 45% is not a small percentage, but the difference between generations is very relevant.

Q.: The younger generations, therefore, behave differently in relation to fashion purchases. What are their must-haves?

A.: Younger generations are looking to be more brand-bound, with a more emotional feeling, of personalization, of unique experience, both in the product and in customer service.

Q.: When you say emotional, what do you mean?

A.: I mean that the connection with a brand is no longer static, but has to do with how the messages it sends through digital platforms and social networks make the public feel. Young people connect with an idea, a thought, a feeling of belonging, with identification. They are looking for inspiration, fun, ability to express what they themselves feel through garments; to project success, to be at the forefront of fashion... They are looking to highlight a feeling of authenticity. That’s something that matters a lot to them.

Q.: And how do brands have to do it to achieve all these attributes?

A.: By being credible. You can’t connect emotionally with someone if they don’t believe you are authentic. They have to be attentive to what happens on social networks. And that means having internal talent that connects with this generation, that is from that generation. We have to start integrating Generation Z talent in companies. We have to be connected with what is being sold on TikTok. Trends grow, become mainstream, then mature and die. In the same way, when a brand becomes mainstream and is not an early adopter, authenticity is reduced. You have to react quickly to what is happening.

Q.: Is it inevitable that brands, like trends, will die?

A.: Brands don’t have to die, but trends do have a clear life cycle. Brands have to capture trends, which can be ephemeral or last longer. But it must be clear that all of them will eventually become mainstream and, in the end, will cease to be relevant as something authentic. A very important channel to detect these trends and make brand discovery are influencers. Millennials and boomers have celebrities, personalities with more than a million followers, as a reference. But the Alpha and Z generations are very influenced by micro and macro influencers.

Q.: Don’t you think that, in part, the influencer phenomenon is running out of steam?

A.: It is not exhausted, it is transforming and coexisting with the new ways of buying. On the one hand, many brands already have agents that recommend on the web. And there are also Artificial Intelligence (AI) agents that can be integrated into platforms such as TikTok, or not. And it’s not that this is to the detriment of influencers, but perhaps that the AI is left with queries that were previously made directly to them. It is very clear in the Alpha and Z generations, who have almost ten points more adoption of this type of tool.

Q.: To what extent has AI become decisive in making purchasing decisions?

A.: It is not yet decisive, because it is a technology that is growing, and has grown exponentially in the last three years. It is not yet ahead of other channels, but it is quite possible that it will become so. Generation Z still discovers brands through digital advertising (23%) and retail (another 23%). The in-store experience is still very relevant, but brands must also take AI into account.

Q.: The study also points to the need for greater product personalization. Is this possible without raising costs?

A.: This is precisely where the integration of AI in product development can help the most. In the past, this customization was much more complicated and could be much more expensive. Now, with an investment in personalization, you target where it is most relevant for the type of customer.

Q.: While the new generations are moving away from the classic brands, others are being born (such as Nude Project in Spain) with which they connect. What do these brands do differently?

A.: Who are these players? Who are the brand owners? Who is behind the creative side? What generation are they from? It is essential to integrate talent from the younger generations into the creative structures in order to connect with them.

Q.: And these emerging brands, what should the emerging brands learn from the historical ones?

A.: Their challenge is to grow, to scale efficiently. Scale is an increasingly important factor, especially given the consolidation that is taking place in the market. It is necessary to capture operational efficiencies in purchasing, expansion and marketing. Traditional fashion companies, whether in Spain, Europe or the United States, are efficient because they have been investing in technology, processes and operations for many years. The young ones still don’t have that. They have to learn to grow in a profitable way, because sometimes their margins are destroyed. If they scale inefficiently and a bump comes along, such as a pandemic, an increase in raw material costs, exchange rates or a sourcing problem, they may not be able to adapt to the shocks because they are too tight on margins. Or with expansions, they may become heavily indebted and such a problem may take them out of the market.

Q.: In the midst of the luxury crisis, what does this sector have to do to convince the younger generations again?

A.: The younger generations are behaving like good luxury consumers. Their ways are not very different from what we see with more affordable fashion. They want to feel inspired and different. However, there is a tendency to buy second-hand luxury, because the young person has less purchasing power. Brands that are dabbling in second-hand may have an advantage among the younger generation. At the moment, this trend is seen more in the United States than in Europe. When you ask ten young people in the United States, 88% point to the importance of the product, even if it is a luxury product, being more accessible. In Europe, the percentage is 75%. It also depends on the category. In handbags, it is very noticeable.

Q.: Are young people aware of responsible consumption?

A.: This is a question we often ask ourselves and it is curious, because there are discrepancies between the declarative and the factual. That is to say, when you ask what are the most relevant factors for a purchase, 75% say that sustainability is something very relevant. However, when you look for it in the numbers, it is not so clear that it has a decisive weight in the consumption of certain brands. What we do see, however, is a rebound when a strong reputational issue arises, with a rejection of the brand. If a brand has a sustainability scandal that goes viral or appears in the press, there is a reaction from young customers. My recommendation is to be transparent, to have digital passports, etc. Both for ethical and commercial reasons. Because sustainability scandals are paid for in sales. But it remains difficult to trace the direct impact of sustainability. I’m not saying it doesn’t exist, but it’s hard to know how much more a brand that offers sustainable cotton sells compared to one that doesn’t, for example. I don’t know to what extent greenwashing has done damage. If brands are not authentic about sustainability promises, the customer may not believe them.

Nestor Hap: “Sustainability scandals pay off in sales”

Q.: And for authenticity, is the young customer willing to pay a little more?

A.: Yes. Basically, if a brand is not authentic, it won’t be able to capture that generation. Because it’s not going to consider it or discover it. If there is no connection with the person, there will be no sale. It’s not a question of the product being five or ten euros cheaper, in this case. It’s a question of the young person having you at the top of their mind.

Q.: Authenticity beyond quality?

A.: It’s not that quality has no weight. In the case of luxury, for example, accessibility is a very important factor for the younger generations, and so is quality. But they still prioritize the emotional connection. The older generations are more tied to heritage, the weight of the brand and know-how.

Q.: At the same time, the purchase of low-cost products on platforms such as Shein or Temu, and even counterfeits, is proliferating. How do the younger generations behave in relation to this phenomenon?

A.: The super low cost is becoming attractive to young people, and these platforms are being quite successful. They are taking a lot of share away from the big players. In the last three and five years this trend has grown so much that it is very difficult to argue with its market share. In counterfeits I don’t see it so clear. It is much easier to communicate the idea of a player that offers a lot of variety, very adjusted to trends and tastes, with a low price, than to communicate that a design has been inspired or stolen from another.