The global luxury goods market that suffered from an economic slowdown in 2015 has started showing signs of recovering.
Increased domestic and international spending by Chinese consumers and a restoration of confidence in Europe has boosted growth in the industry by 4%, estimated to cost 259 billion Euros.
These findings were made public by Bain & Company, the world’s leading advisor to the global luxury goods industry, in the “Bain Luxury Study 2017 Spring Update” in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers industry foundation.
The report listed five factors responsible for the recovery, namely: the U.S. market landscape, Chinese increased purchases at home and abroad (mostly in Europe), ever-growing influence of digital technology, a widening gap between winners and losers, and the new wave of millennial consumers.
The United States retained its position as the largest market, despite its under-performance. A strong dollar, ongoing political uncertainty and struggling department stores combined to create an uneven outlook for 2017.
Europe is recovering from decreased tourist flows in 2016 and is regaining confidence among local consumers. Spain and the UK stand out as bright spots.
China is also rebounding, as local consumers demonstrate strong preference for local markets, which is expected to drive growth of 6-8 percent.
Across the rest of Asia, the luxury market is set to shrink by -2 to-4 percent. Hong Kong, Macau and Singapore are improving, but Taiwan and South-East Asia face decreased tourism, particularly from China and South Korea, which has been impacted by domestic political turmoil.
The rest of the world is expected to be flat or see only slight growth of 2 percent with the Middle East remaining stagnant (outside of Dubai).
The momentum of digital transformation continues to reshape the luxury industry. Bain expects online sales 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.
By 2020, the luxury market is expected to maintain mild growth of 3-4 percent per year as the market size increases to 280-290 Billion Euros. The younger generation will play a vital role as millennials will represent 45 percent of the global personal luxury goods market by 2025.
“Brands need to be customer obsessed and millennial minded,” said Bain partner and report co-author Federica Levato. “Buying a luxury good now is not just walking into a store. It has become a journey of engagement through multiple touch-points well before the point of sale.”