Global luxury goods market on the rise again, reaching a record value of 262 billion euros in 2017
The 16th edition of Bain & Company’s study of the global luxury personal goods market reveals a rebound in the market after a year of stagnation, boosted by sustained growth in local consumption in most regions and an increase in tourist purchases.
Luxury is back in vogue. The global luxury market, comprising luxury products and experiences, grew by 5% in 2017 to around 1,160 billion euros worldwide. Luxury car sales, up 6% with sales at 489 billion euros, continue to drive market growth. High-end experiences are attracting ever more customers: witness the 6% leap in the gourmet food and fine wine sector, and the spectacular 14% annual increase in luxury cruises. Boosted by an upsurge in purchases by Chinese consumers in their home market and abroad, as well as by increased purchases in other regions, the luxury personal goods market has reached a record level of 262 billion euros. These are the findings of the 16th edition of the Luxury Goods Market Survey published by strategy consultancy Bain & Company, in collaboration with the Altagamma Foundation[1].
“The first half of the year looked promising, and this trend has been confirmed in recent months, restoring the image of the luxury personal goods market,” says Claudia D’Arpizio, partner at Bain and lead author of the study. “The sector’s growth is more sustained, driven by increases in volume rather than price, and by a better balance between tourist purchases and the upturn in local consumption.”
Global rebound driven by sustained growth in key regions
Europe continues to recover, with sales up 6% at current exchange rates. With sales peaking at 87 billion Euros, it regains the top spot in the regional luxury goods ranking, ahead of the American continent. Tourist flows are particularly buoyant in the UK, Spain and France. Local consumption has also increased, particularly in Germany.
Purchases by Chinese customers, who are increasingly fashion-savvy, boosted sales in China by 15% (at current exchange rates) in 2017, rising to a total value of 20 billion euros. Purchases made by the Chinese abroad have also increased, and now account for 32% of personal luxury goods purchases worldwide.
The rest of Asia (excluding mainland China and Japan) also recorded solid growth of 6%. In Hong Kong and Macau, the lights are once again turning green, with sales reaching 36 billion euros this year.
Favourable exchange rates in the second half of the year and increased Chinese spending propelled growth in Japan to 4% (at current exchange rates), to reach sales of 22 billion euros this year. In the future, the challenge for brands in this market will be to meet the needs of Millennials, who display more detached consumer behaviors.
Despite some difficulties, the Americas (North and South America) managed to close the year with positive growth of 2% compared to 2016. Totaling 84 billion euros, this region retains its status as a strategic market for luxury brands, which continue to face difficult conditions in the department store sector. Canada and Mexico stand out in the region.
The rest of the world is stagnating at 1%, particularly in the Middle East where the economic context remains uncertain.
How are the buying habits of luxury consumers changing?
Proprietary distribution channels grew by 8% in 2017, with 3% resulting from new store openings and 5% from like-for-like sales growth. Multi-brand channels grew by just 3%, buoyed by the performance of specialty stores, but held back in part by the disappointing results of department stores worldwide.
The unstoppable rise of online sales is confirmed, with a 24% increase in sales in 2017. While the US market accounts for almost half of online sales, which total 23 billion euros, growth is particularly remarkable in Europe and Asia. Accessories remain the best-selling category online, ahead of apparel; beauty products, as well as watches and jewelry, are on the rise. Brands finally seem determined to take advantage of this channel by creating their own online stores, which now generate 31% of sales.
According to estimates by Bain & Company, online sales of luxury goods will account for 25% of the market by 2025, compared with 75% of transactions still carried out in stores.
“The role of the physical store is clearly changing. The growth of the online distribution channel is remarkable, boosted by a ‘millennial’ mindset that has spread throughout the luxury industry. But this doesn’t mean that stores no longer have a raison d’être: brands must reinvent themselves to create continuous customer engagement that transcends distribution channels,” comments Marc-André KamelPartner at Bain & Company in Paris, and Head of the Retail and Luxury Competence Center for the EMEA region.
What is the profile of luxury customers and what products do they buy?
Shoes, jewelry and bags are the best-performing categories in terms of growth this year, but apparel, beauty products and watches remain the most important in terms of value. Luxury brands are reinventing streetwear to appeal to younger generations, with sustained growth in categories such as t-shirts, sneakers and down jackets.
Generational renewal is the main growth driver for the luxury market, with 85% of market growth now driven by generations Y and Z.
The future of luxury
Bain forecasts a continuation of the positive trend in the luxury personal goods market, with a growth rate (at constant exchange rates) of 4 to 5% per year for the next 3 years, reaching sales of 295 to 305 billion euros by 2020.
While the gap between winners and losers is widening, market conditions are nonetheless moving in the right direction. Almost two-thirds of brands (65%) managed to record positive growth in 2017, compared with just 50% in 2016.
Profitability levels remain high on average (around 19% operating profit in 2017). The phenomenon of polarization is even more pronounced for profitability than for growth: among brands growing in 2017, only a third also managed to increase their profits.
“It’s an exciting time for the world of luxury. The millennial mindset is changing the way all generations shop, and pushing luxury brands to redefine what they bring to their customers,” explains Joëlle de MontgolfierDirector of Research for Bain’s Retail and Luxury Competence Center in EMEA. “For luxury brands that know how to adapt, the growth potential in the years to come is significant,” she concludes.
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