After a period of slow 1 to 2 percent growth over the last couple of years, global luxury spending is set to see a bit of a recovery through 2020.
In its latest global personal luxury goods market report, Bain & Company predicts 2 percent to 4 percent growth in 2017 to 254 billion to 259 billion euros ($284 billion to $289.5 billion). By 2020, that number is expected to increase by 3 percent to 4 percent to 290 billion euros ($324 billion).
“This year looks promising so far,” said Claudia D’Arpizio, a Bain partner and lead on the study. “After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. Factors such as the continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year.”
The report, which was compiled in collaboration with Italian luxury goods foundation Fondazione Altagamma, names e-commerce as the channel of choice for luxury sales followed by off-price, which continues to lure value-oriented shoppers. Owned stores should remain strong, though Bain warns they may be hitting a saturation point in terms of square feet.
The gap between winners and losers will continue to widen with those retailers that effectively develop loyalty and delight consumers in the plus column. Those that adopt a millennial mindset will also gain share, as millennials and Gen Z are slated to make up 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 touchpoints well before the point of sale.”
The recovery by region
While the news is good overall for 2017, the Americas are not slated to be a part of the recovery.
The U.S. economy is now expected to seesaw from a “Trump bump” to a “Trump slump,” as the novelty of the new administration wears off and tourism takes a hit. Consumer confidence will be hampered by uncertainty surrounding trade and tax reform talk. The blight on U.S. department stores is also clouding the outlook as their slow evolution from in-store to online drags down performance. In the meantime, Latin America will enjoy some local consumption while Canada slows.
Overall, luxury consumption in the Americas is projected to be flat at best, with a possible 2 percent decline.
All eyes have been on China, as economists have predicted the global luxury economy hinged on a revival there. The country, which began to rally last year after a three-year decline, is expected to enjoy a 6 percent to 8 percent increase in luxury sales. The uptick will be driven by purchases on its home turf as shoppers find the price differentials between home and abroad narrowing. This shift to shopping in China, will eat away at sales throughout the rest of Asia, resulting in a 2 percent to 4 percent contraction for the area. Chinese consumers are expected to boost purchases in Europe as safety concerns subside, and though the U.S. remains a top destination, the strong dollar will keep some Chinese at bay.
Spain and the U.K. are expected to lead the tourism recovery in Europe, as shoppers look to the former for a safe destination and the latter for the weak pound. Growth for the region is anticipated to hit 7 percent to 9 percent.
As each region and brand scrambles to be recipients of the overall personal luxury goods revival, Bain says to be successful, they must develop one-on-one relationships, focus on personalization across messaging, service and product, and redesign the customer journey with elevated experiences in mind.
It’s a multipart strategy, requiring them to “master all the touchpoints with the customer along their journey and create an ongoing 360° engagement plan.”
Retail sales growth picked up in July compared to recent months, helped by strength in e-commerce and by a slight recovery in department store sales.Read more
Retail giant Amazon rolls out a new way for shoppers to get instant gratification from their online orders and tangles with Trump over state sales taxes.Read more
Now that NAFTA negotiations have officially started, it looks like the trade deal may come far from the one we've known for the last 23 years.Read more
The seven variables that allow apparel businesses to balance performance and vulnerabilities by effectively identifying, assessing, mitigating and managing their supply chains.Read more
Consumers are starting to reward Target for its work to transform its product, customer experience and fulfillment offerings.Read more
Consumer interest in brick and mortar shopping seems to be picking up, or at least declining at a slower rate, according to the most recent store foot traffic data released by analytics firm Retail Next. It may be a glimmer of hope for physical retailers amid the……...Read more