Jun 19, 2019

Bain Study Pegs Global Personal Luxury Goods Market for 2018 at €260 Bn; Forecasts Growth for 2019 Too

The spring luxury update, ‘Bain Luxury Goods Worldwide Market Study, Spring 2019’ released by Bain & Company recently confirmed growth predictions for 2018; and said that 2019 would also see an expansion for the segment. The study was presented in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.

“The global personal luxury goods market reached a “new normal” pattern of growth, following back-to-back years of strong performance in 2017 and 2018,” Bain said. “In 2018, 6 percent global growth (at a constant exchange rate) led to €260 billion in sales, which is expected to balloon to €271-276 billion in 2019, registering an expected 4 percent to 6 percent growth at constant exchange rates.”

The leading management consultancy said that the growth of the segment in 2018 was mainly driven by increase in domestic spending in Mainland China; and an increase in European tourism. The latter, “despite socio-political turmoil in countries like the United Kingdom and France, fueled positive growth in the region through the 2018 holiday season”, Bain stated.

However, Bain pointed out to, what it called, “a temporary weakening of consumer confidence” in North America. This, combined with a decrease in traffic to malls and department stores, “negatively impacted personal luxury spending during the 2018 holidays stateside”, Bain said.

“This year looks to be on par with our new normal of growth in the market,” said Claudia D’Arpizio, a partner with Bain & Company and lead author of the study. “China continues to dominate the luxury scene. 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.”

Dissecting the performance of the luxury market regionwise, Bain noted that in the Americas, the U.S. luxury market which was lukewarm saw only a “mild growth” in 2018.

“A newly issued U.S. tax reform plan created temporary uncertainties for consumers and negatively impacted domestic spending on personal luxury goods,” Bain’s analysis revealed. “Meanwhile malls and department stores continued to struggle with decreasing traffic, while mono-brand stores maintained a positive growth trend.”

For 2019, Bain has forecast a 2-4 percent growth (at constant exchange rates) in the region.  “with a promising rise in domestic consumption of full-price stores despite a declining flow of Chinese tourists”.

The study tracked a positive growth in Europe in 2018, “despite socio-political turmoil in the United Kingdom and France”. The study attributed the growth “to an influx of tourism driven by the weakening of the Euro against all major currencies”.

For this region, Bain says, “socio-political upheaval and a weakening macro-economic outlook continue to pose threats to the region’s spending on personal luxury goods”; and posits a 1-3 percent growth (at constant exchange rates) in 2019.

The star market for personal luxury goods, Mainland China, “continues to dominate the global market”, Bain said. This is due to local consumers demonstrating “a strong preference for purchasing luxury goods at home” which in turn is a result of “price harmonisation, consumer-centred strategies, and governmental initiatives”.

“Solid consumer confidence and willingness to buy, especially among young generations, are expected to drive year-over-year growth of 18-20 percent (at constant exchange rates) in the region,” Bain stated.

The consultancy views Japan as “an exclusive and attractive market for luxury brands”, with forecasted growth of 2-4 percent (at constant exchange rates) in 2019.

“Tourist spending is expected to rise ahead of the Tokyo Olympics in 2020, with Chinese consumers already confirming their interest in the area,” Bain noted.

For the rest of Asia, Bain has maintained a positive outlook, forecasting a growth of 10-12 percent (at constant exchange rates) in the region.   The only exception Bain notes are Hong Kong and Macau, “which continue to lose out to Mainland China”.

Referring to the rest of the Asia region, Bain said: “An expanding middle class with increasing disposable income is fueling growth in Indonesia, Philippines and Vietnam, while sustained growth in South Korea is the result of local consumers and a mild rebound of tourism.”

As for the rest of the world – Bain expects flat growth or even slight decreases of 2 percent (at constant exchange rates); the Middle East continues to remain  stagnant “as domestic consumer spending begins to flow outside of the region”.

“We expect stable growth in 2019,” said D’Arpizio. “But under the surface of this new normal, the future of luxury is taking shape with a number of key characteristics, including Chinese Generation Z, access, ownership, sustainability and social responsibility, the impact of digital across the entire value chain, preference for luxury experiences over products, and consumer networks as a new measure of value.”

Bain & Company’s research identifies five megatrends that are likely to shape the next generation of luxury in the long-term, which in its own words are:

  • A new generation: Chinese Gen Z is “the segment to watch.” They will have significant spending force as proud and empowered impulse buyers.
  • Post-ownership: Bain expects a paradigm shift in consumption favouring access over ownership (e.g. rental, second-hand market).
  • Afterlife: Sustainability, social responsibility and circular fashion will be the new mantra, based on a new vision focused on the environment, human labour and animal welfare.
  • Beyond physical: Digital will disrupt the entire luxury value chain and necessitate a holistic redesign of the technology eco-system, with an emphasis on luxury experiences over products.
  • Above volume/price: Customer networks will be the new and exponential measure of value, beyond product and brand.

Federica Levato, a partner with Bain & Company and co-author of the study commented: “It’s important to highlight the role that insurgent brands will play in the luxury sector. They will challenge established brands, pushing for a real paradigm shift with a more creative approach that goes beyond the product itself and impacts all facets of business, ultimately creating a more direct and continuous dialogue with consumers.”