It’s become something of a tradition: halfway through the year, Bain & Company takes the industry temperature in its Luxury Goods Worldwide Market Study, produced in collaboration with Fondazione Altagamma (the Italian luxury goods manufacturers’ industry foundation). The key finding is that after the years of runaway growth, fuelled for the most part by China’s insatiable appetite for luxury goods, we are seeing a return to “normal”. Growth for the whole of 2019 is forecast at 4% to 6% (at constant exchange rates), in the wake of 6% last year. At this rate, the global personal luxury goods market is expected to reach between €271 and 276 billion (after €260 billion in 2018). The consultancy expects this “new normal” pattern of growth to continue at an annual average of 3% to 5%, and that the market will reach between €320 and 365 billion by 2025. “China continues to dominate the luxury scene,” says Claudia D’Arpizio, a partner with Bain & Company and lead author of the study. “Elsewhere we are continuing to see geopolitical uncertainty shape and reshape tourism spending patterns, with Chinese consumers choosing to spend domestically with more frequency. Overall we are seeing moderate growth in most markets.”
For the current year, Bain & Co reports a continued positive trend in the United States (+2%-4%), in spite of uncertainty surrounding the trade war with China and the risk of a drop in tourism from Asia. Europe is expected to perform well (+1%-3%), despite the shadow of economic slowdown in Germany and the political upheaval that continues to surround Brexit in the United Kingdom. Asia, meanwhile, has become the driving force behind luxury sales, with Bain forecasting growth of between 18% and 20% this year in China, where domestic spending is now key for the sector – and widely encouraged by government initiatives and price harmonisation.
Five new paradigms
The rest of South-East Asia, except for Hong Kong and Macao, isn’t far behind. Growth for 2019 is expected to reach between 10% and 12%, fuelled by an expanding and robust middle class in economies such as Indonesia, the Philippines and Vietnam. South Korea also confirms it is an Asian tiger with a roar. Even Japan seems to be renewing with ongoing growth (2%-4%), thanks to spending by Chinese tourists and ahead of the 2020 Olympic Games. First-quarter figures suggest that leathergoods and jewellery are the two segments driving the luxury market in 2019, followed by cosmetics. At the other end of the spectrum, Bain notes a “hesitant” upturn in watch sales, due in large part to tensions in Hong Kong, the main export market for Swiss watchmakers.
Looking ahead, the firm describes five mega trends that will shape the luxury landscape in the long term. The first concerns China’s Generation Z, whose spending power will make them the major force within the market. A second factor relates to changing mentalities and the shift from ownership to access, through rental and pre-owned. Sustainability and social responsibility make continued inroads and are introducing a new ethical model. The luxury market will also have to adapt further to digital, a social phenomenon, as the influence of social media and their powerful consumer communities continues to gain strength. Those who stand to profit most are the “insurgent brands” who are willing to take a creative approach in an environment where the luxury product is increasingly an “accessory” in its own right.