Dec 03, 2019

Bain Report: Overall Luxury Market Grew at 4% in 2019 to an Estimated €1.3 Trillion; Personal Luxury Goods at €281 Bn

The 18th edition of the Bain & Company Luxury Study, which was released in Milan recently, as well as tracking the numbers, came up with a number of interesting insights.

The study, undertaken in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers' industry foundation, found that the overall luxury market – encompassing both luxury goods and experiences – grew by 4% at constant exchange rates in 2019 to an estimated €1.3 trillion globally.

“The luxury sector powered through geopolitical turbulence and recession fears in 2019,” Bain remarked when releasing the findings.

The study found that the core personal luxury goods segment followed a similar path to overall luxury market: growing at 4 % at constant exchange rates, this segment touched €281 billion in 2019. 

“The nature of luxury customers is evolving fast: younger luxury buyers seek an ongoing conversation with brands which will force them to innovate both their business models and value propositions,” Bain noted.

“The global luxury market confirmed this year the moderate growth rate associated with the ‘new normal’ era, mainly driven by Asian buyers,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “The luxury customer is present and increasingly active, dramatically rewriting the rulebook of the industry. Brands will need to pivot to a new model to respond to customers’ needs when it comes to buying, consuming and communicating.”

The study also found that while Asia delivers the largest chunk of market growth; online continues to disrupt the segment.

Mainland China, which has been a growth driver for the luxury industry in the recent past, saw its market growing by a commendable 26%  at constant exchange rates in 2019 to reach €30 billion. “Chinese customers accounted for 90 per cent of the constant growth of the market in 2019, reaching 35 per cent of the value of luxury goods,” Bain said, attributing this performance to Government policies and lower price differentials which it said, “continued to fuel local consumption”. 

Not surprising was the finding that luxury consumption in Hong Kong has been adversely impacted by ongoing protests there. “The market fell by 20 percent in 2019 to €6 billion,” Bain said. “The Hong Kong luxury landscape will reach a new equilibrium, with rules of the game deeply transformed and local customers becoming the main focus.”

Interestingly, the study found that Chinese luxury goods buyers “have turned their sights to other Asian destinations”, thus boosting the performance of these markets. “Japan grew by 4 percent at constant exchange rates to €24 billion while the rest of Asia grew by 6 percent at constant exchange rates, reaching €42 billion,” the study discovered.

Meanwhile, in the Americas, US consumption was “boosted by domestic confidence but tempered by reduced tourist flows”. And though growth has been sluggish across the region, its sheer overall market size – accounting for €84 billion worth of sales – keeps it firmly positioned as the core region for personal luxury goods.

Though Europe remained slow, with a growth of only 1% at constant exchange rates, it too accounts for a chunk of the market amounting to €88 billion in size. “Spain and the UK were among the top performers, driven by tourism and weak currency, respectively,” Bain remarked. “Germany was impacted by a slowing country dynamism and France by social unrest earlier in the year.”

The market was depressed in the other geographies, which account for sales worth €12 billion; this segment experienced a decrease of 5% at constant exchange rates. “The Middle East, aside from a hesitant recovery in Dubai, was a subdued market affected by lower consumer confidence and geopolitical uncertainties,” Bain said.

As for most other sectors, globally, online continues to gain share and now accounts for 12% of the market, “with customers increasingly influenced and enabled by digital channels, also in their physical purchases”, the study found. Noting that this is continuously disrupting the physical channel, Bain & Company said it anticipates that the global network of physical stores could peak in 2020.

Bain’s study threw up some interesting insights on consumer demographics as well.

“Millennial customers (also known as Generation Y, born between 1980 and 1995) have been steady buyers of luxury,” Bain stated. “They account for 35 percent of consumption in 2019 and by 2025 could make up for 45 percent of the market. But it’s the even-younger Generation Z that is poised to reshape the industry: by 2035 they could make up 40 percent of luxury buyers and they display behaviours that distinguish them from other generations.”

“Gen Z customers are the new frontiers of tomorrow’s luxury market – and they already represent a growing portion of luxury consumption in Asian markets,” said Federica Levato, a Bain & Company partner and co-author of the study. “They see themselves as critical actors of the creativity and conversations with luxury brands; they are returning to products, stores and physical interactions with brands to truly connect and engage emotionally with them.”

One of the main concerns for consumers today is social responsibility, which concept encompasses more than just environmental impact. A large number – 80% -- of luxury customers, particularly millennials, say they prefer brands that are socially responsible. Moreover, 60% of luxury customers think “luxury brands should be more engaged than other industries”.

The growth of the secondhand market, which reached €26 billion in 2019, is one example of a successful business model, which the luxury customers evolving mentality has encouraged, says Bain.

“We see the secondhand market as a potential avenue for luxury brands to reach a new audience and enlarge their customer base,” said Ms. Levato. “For many customers, this may be their first luxury purchase but luxury brands shouldn’t see this as a threat and should manage it strategically to grasp the full potential of this opportunity.”

With regards to categories within personal luxury goods, shoes and jewellery stand out as the outperformers, both growing by 9% at constant exchange rates in 2019, followed by leather goods growing at 7% at constant exchange rates; and beauty with a 3% growth at constant exchange rates. “Watches demonstrated a sluggish performance, declining by 2 percent at constant exchange rates,” Bain noted.

Bain & Company said it anticipates that the luxury customer base will expand to 450 million by 2025, up from 390 million in 2019, due, in main, to the growing middle-class, especially from Asia. “This will further stimulate the entry-price segments, which in 2019 already represent a sizable part of the market (35 percent within leather goods category and 30 percent in the jewellery), as well as the off-price channel, which grew by 11 percent at current exchange rates in 2019 reaching €36 billion,” Bain said

“Going forward, luxury brands will need to connect with customers in an increasingly personal way,” said Ms. D’Arpizio. “The products, experiences and ideas that they deliver will need to flow together to appeal to the emotions of younger customers, who are diverse, global and opinionated. The pace of innovation is already rapid, but new models of consumption, evolving channels, and changing customer desires will spur the need for even faster adaptation.”