Bain & Company projects 10% surge in worldwide luxury goods sales in 2010, erasing recessionary declines

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BAIN & COMPANY PROJECTS 10% SURGE IN WORLDWIDE LUXURY GOODS SALES IN 2010, ERASING RECESSIONARY DECLINES

Unexpected Rapid Return of U.S. Shoppers to Luxury Stores and Continued Double-Digit Growth in China Propel Spike in Worldwide Sales

New York, NY-October 18, 2010-The global crisis in worldwide luxury goods sales came to an end in the fourth quarter of 2009, ending a first-ever full year decline in sales, of 8%, and is now projected to rise 10% in 2010, reaching 168 billion Euro (nearly eclipsing its historical market peak of 170 billion Euro in 2007); this was announced today by Bain & Company at the annual Fondazione Altagamma (the Italian luxury goods industry trade association) conference, where the global business consulting firm and leading adviser to the global luxury goods industry released the 9th edition of its bellwether 'Luxury Goods Worldwide Market Study.'  Bain links the market rebound to several key sales drivers: double-digit increases, on average, in the second and third quarter; a rapid return of consumers to brands' direct-owned stores; continued strong growth in China; a rebound of sales in the U.S. (largest single market); and particularly strong sales of leather, shoes, and accessories.

"While the sector is not entirely out of the woods, we see strong growth signals in key markets and channels that suggest a full rebound in luxury goods sales to pre-recession levels," said Claudia D'Arpizio, a Bain partner in Milan and lead author of the study.

Although 40% of the sales revenue increase stems from the depreciation of the Euro, even at constant exchange rates versus last year, the projected 2010 growth constitutes a 6% year-over-year increase.  The final quarter of 2009 saw an end to a six-quarter long decline in year-over-year luxury sales, and was flat compared to the same quarter in 2008.  Starting in 2010, luxury sales increased 6% in the first quarter, 16% in the second quarter, 13% in the third quarter, and is projected to grow 5% in the fourth quarter.  Bain further forecasts growth of 3% to 5% in 2011 as the luxury market returns to a more level growth rate.  However, the 2011 forecast assumes a constant exchange rate, and may increase or decrease based on the fates of the Euro and the dollar.

Bain's analysis shows the luxury rebound in 2010 hinges largely on the performance of retail stores owned and managed directly by luxury brands.  Sales in this channel increased by 20%, compared to 6% increases in the department store and wholesale channels.  "The shift from wholesale to retail shows that luxury brands have much more control over their own fates, but also much more responsibility," said Claudia D'Arpizio, a Bain partner in Milan and lead author of the study.  "We are going to see a decade where the balance shifts to brands that have the best retail management, the best shopping experience, and the greatest capacity to invest."

Other channels are also increasing their impact on the sector.  Luxury sales online are over-performing overall web sales, and will grow at 20% in 2010, to 4.2 billion Euro.  Off-price sales account for 30% of online, versus 70% of online purchases made at full price.  Discount luxury outlet stores will grow to 8.2 billion Euro in 2010, having grown an average of 12% each year since 2007.

Bain forecasts that sales in China will achieve 30% year-over-year growth for 2010, reaching 9.2 billion Euro.  China is positioned to become the world's third largest country market by the middle of the decade.  Overall, the Asia-Pacific region, except Japan, will see 22% growth in 2010.  U.S. sales will increase by 12%, to 46 billion Euro, representing the largest absolute revenue increase for the year.  Bain estimates that 2010 growth for Europe will be 6%, to 62 billion Euro.  Only Japan sees continued decline, shrinking by 1% in 2010 as mature luxury consumers reduce their spending and as younger shoppers avoid traditional luxury brands.

The study finds this year's luxury rebound lifting all core product categories in the sector.  Apparel is forecast to grow 8% for the year.  Hard luxury (including watches and jewelry) is projected to grow by 13%.  Accessories, shoes and leather goods will expand by 16% coming close to exceeding the revenues of apparel, traditionally the largest luxury goods sector.  Perfume and cosmetics are forecast to grow at 4% for 2010.  "The rise of accessories will continue as consumers seem unwilling to compromise on bags and shoes, even when they may mix and match luxury and non-luxury items in their wardrobes," added Ms. D'Arpizio.

"This sharp rebound shows just how quickly our industry has matured" said Santo Versace, Chairman of Fondazione Altagamma, "We are seeing the real payoff that comes from brands to sharing their experience and investing in more robust business capabilities that match their design excellence."

"We've seen a number of new behaviors and trends emerge now that the crisis is reversing," concluded D'Arpizio.  "The luxury shopper of this decade is more likely to be Chinese, more likely to be male, and more likely to be young.  Brands that meet the needs of these new segments will be in the best position to keep growing in a new decade."

For a copy of Bain's updated Luxury GoodsWorldwide Market study or to schedule an interview with Claudia D'Arpizio, please contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102.

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About the Bain 'Luxury Goods Worldwide Market Study'

Bain & Company, in cooperation with Altagamma – the flagship trade association for the Italian luxury goods industry – has analyzed the market and financial performance of more than 250 of the world’s leading luxury goods companies and brands. The database of companies, known as the ‘Luxury Goods Worldwide Market Observatory,’ has become a leading and much studied source for the international luxury goods industry. Bain publishes its annual findings in its ‘Luxury Goods Worldwide Market Study,’ which was first published in 1999. The study’s lead author is Claudia D’Arpizio, a Bain partner in Milan. Altagamma is led by Andrea Illy, who took on the foundation’s presidency in 2013.

About Bain & Company, Inc.

Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick.  The firm aligns its incentives with clients by linking its fees to their results.  Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 51 offices in 33 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.com.  Follow us on Twitter @BainAlerts.