Report Sees Luxury Sector Sales Rising – But Challenges AboundJune 01, 17
Has the luxury market turned a corner, helped by a recovery in sales in mainland China and elsewhere? After decreasing by around one percent in 2016 – the first decline in seven years – the personal luxury goods market appears to be turning around, according to new research from the business consultancy Bain & Co.
The first quarter of this year has seen growth of around 4 percent – albeit aided by weak comparisons from the same period last year when acts of terror combined to batter sales. Nonetheless, Bain & Co forecasts a 2-4 percent growth rate for 2017, and sales rising to €254 billion-€259 billion. Further afield, Bain expects luxury sales globally to reach $290 billion within three years.
Growth this year has come about as a result of renewed appetite for luxury goods on the part of consumers in mainland China at home and on overseas trips. Chinese consumers account for one in three luxury purchases globally and will continue to comprise a major source of overseas tourist flows. A corruption crackdown over the past two years or so has had a noticeable impact on sales to Chinese buyers, but the increasing tendency for Chinese buyers to acquire luxury goods at home is seen driving growth of 6-8 percent this year for the mainland China market. Meanwhile, sharp declines in sales in Hong Kong and Macau in the past several years appear to have been curbed, although the situation remains fragile.
China continues to play a leading role in the global luxury market, writes Federica Levato, partner at Bain & Company. "The relevance of Chinese consumers, locally as well as abroad, will still be high in the market and will continue to deeply shape the industry in the coming years. The mainland China market is on a positive trend and we expect it to be maintained throughout this year, fuelled, among other factors, by the repatriation of local consumption," she commented. Apart from mainland China, however, Bain predicts the Asian luxury market will shrink by 2 to 4 percent because of falling tourism numbers in Taiwan and Southeast Asia.
Encouragingly, recovery was witnessed in the European market in the fourth quarter; indeed Bain & Company characterized demand as "buoyant". With Britain, France and Germany having suffered terror attacks over the past half year, however, it will be interesting to see if that trend can continue. Bain forecasts growth of 7 to 9 percent in luxury sales in Europe. Britain, in particular, following the collapse of sterling after the country voted to leave the EU a year ago, is seen as a bright spot.
A less bright spot is the United States, hit by the growing strength of the US dollar, political uncertainty and the problems affecting department stores which have traditionally served as the main sales channel for luxury brands but are being closed down in rising numbers. Bain forecasts luxury sales to decline by up to 2 percent this year in the US.
Away from geography, and digital – not surprisingly – is continuing to see a great deal of action. Successful brands are those that have seriously invested in digital platforms and are engaging with a “millennial mindset”. This means putting money into online operations, talking directly to end consumers via social media, and adopting an omni-channel approach that combines e-commerce with physical stores.“Brands need to be customer obsessed and millennial minded,” said Levato, who co-authored the report. “Buying a luxury good now is not just walking into a store. It has become a journey of engagement through multiple touchpoints well before the point of sale.”
As the report states: “Consumers are asking for more innovation and more creativity. We are seeing a bigger gap between winners and losers, driven by the ability of brands to understand the way the consumers are changing." That, in a nutshell, encapsulates the issue facing the retail sector in general, and the luxury sphere in particular.