Driven by a firm Chinese rebound with purchasing both at home and overseas as well as increasing customer confidence in Europe, the global personal luxury goods market is expected to grow by two to four percent in 2017, reaching between €254 to 259 billion, said the Bain Luxury Study 2017 Spring Update published by Bain & Company in collaboration with the Italian luxury goods manufacturers’ industry foundation Fondazione Altagamma.
As the gap between winners and losers continues to widen, brands must rethink their strategies and adapt to a millennial state of mind, which will be a key driver to push the market to €290 billion in sales by 2020, the study said.
Claudia D’Arpizio, a Bain partner and lead author of the study said: “After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. Factors such as the continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year.”
The study also presents the growth trends in key international markets. It notes that the US luxury market continues to underperform, and with a strong dollar, ongoing political uncertainty and struggling department stores the outlook for 2017 remains uneven. The North American region, including Latin America and Canada, is expected to shrink by two percent or show zero growth (at constant exchange rates).
The Bain report sees Europe recovering from decreased tourist flows in 2016 and local consumers regaining confidence among. Spain, perceived as a safe destination, and the UK, where the pound is substantially weaker than this time last year, stand out as bright spots. Bain forecasts growth of seven to nine percent (at constant exchange rates) for the region.
Mainland China is also rebounding, the report states, with local consumers now demonstrating a strong preference for purchasing luxury goods at home. This is expected to drive growth of six to eight percent (at constant exchange rates). However, Chinese tourists will still account for a sizable portion of luxury purchases abroad.
Japan, a more mature market, remains a safe market for luxury brands, while across the rest of Asia, the environment remains difficult. Bain believes the market in that region is set to shrink by two to four percent (at constant exchange rates). The rest of the world is expected to be flat or see only slight growth of two percent (at constant exchange rates), with the Middle East remaining stagnant (outside of Dubai).
The report highlights five key themes that luxury goods companies should keep in focus for the rest of the year:
US market: The largest market for personal luxury goods is facing a combination of factors which hamper growth. Brands will require an impeccable strategy and execution focused on developing loyalty and delighting local customers.
China: Lower price differentials in China are encouraging a flourishing local market, while Europe benefits from its standing as an attractive destination for Chinese tourists.
Digital and off-price: The momentum of digital transformation continues to reshape the luxury industry with online sales expected to be the leading channel with the highest growth in the coming years, followed by off-price stores. Physical mono-brand stores will be the real playground for luxury brands, although their footprint may be approaching the limit.
Big winners vs. strong losers: The polarization trend, which Bain’s research highlights as a feature of the “New Normal” era, is highly evident in the first months of 2017 as the gap between winners and losers widens further.
The millennial state of mind: Success in the next decade requires brands to refocus on their customers to better anticipate and cater to their needs. The younger generation will be key as millennials and Gen Z will represent 45 percent of the global personal luxury goods market by 2025. Still, when analysing behaviours, it is more correct to talk about a “millennial state of mind,” which is increasingly permeating across all generations and is thus more a psychographic phenomenon rather than a purely demographic one.
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