THE GLOBAL PERSONAL LUXURY GOODS MARKET IN 2016 WILL MIRROR LAST YEAR’S LOW SINGLE-DIGIT REAL GROWTH, EVEN AS GEOPOLITICAL TURMOIL AND LUXURY BRANDS’ EMERGING STRATEGIES RESHUFFLE INTERNAL MARKET DYNAMICS

Bain & Company’s spring luxury update finds that sound demographics are projecting a new wave of growth ahead

Milan – May 24, 2016 – Last year marked the beginning of a new era of slower but steady growth for the global personal luxury goods market – including leather accessories, fashion, hard luxury, and fragrance and cosmetics – which reached €253 billion in revenue. This is up 13 percent at current exchange rates from 2014, but only 1 percent in real growth terms, as a result of global challenges that hung heavy over the luxury industry in the last quarter of 2015, including a slow U.S. holiday season, decreased tourism across Europe, instability in the Middle East and a downturn in China. These are the top-line findings from Bain & Company, the world’s leading advisor to the global luxury goods industry, in the “Bain Luxury Study 2016 Spring Update” released today in Milan in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.

According to Bain, the 2015 slowdown seeped into the first quarter of 2016 with only 1 percent growth – a trend that is expected to continue throughout the year.

“The luxury market is stuck in a holding pattern for the foreseeable future,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “All eyes are again on Mainland China, which is the key to unlock recovery around the world, and the U.S., where local consumption is failing to offset decreased tourism. Consumers’ changing purchase patterns, including a reshuffling of tourism and revitalized local spending in Europe, will likely do little to drive luxury brand growth much beyond the low single digits.”

Bain’s 2016 Luxury Outlook

In the Americas, the U.S. luxury market is in decline with no support from tourism and uneven local demand. On the other hand, local spending is contributing to a slightly positive trend in Latin America due to the resurgence of tourist spending. Canada will continue to fare well. Overall, luxury growth decreased 2 percent at current exchange rates; 0 percent at constant exchange rates.

Slow tourism throughout Europe as a result of terrorism and new biometric visa requirements will likely dampen the region’s luxury market growth (up 1 percent at current exchange rates; 3 percent at constant exchange rates), but locals could make up for it across luxury categories and countries.

Greater China is showing signs of a comeback, particularly in Mainland China (up 2 percent at current exchange rates; 4 percent at constant exchange rates), which is on the verge of reversing a three-year decline. Taiwan will hold steady as well. However, Hong Kong and, to a minor extent, Macau will continue to struggle.

Japan retains its title as the top market for luxury growth (up 5 percent at current exchange rates; 7 percent at constant exchange rates), yet it is showing signs of a slowdown versus 2015, due to a stronger Yen and consequent reduction of Chinese tourists. Locals are not expected to spend as much at home to counterbalance.

Across the rest of Asia, Southeast Asia – except Singapore – is performing well, supported by intra-regional tourism and local spending. Chinese tourism will continue to support luxury spending in South Korea. Excepting Mainland China, luxury market growth in Asia is down by 1 percent at current exchange rates; up 1 percent at constant exchange rates.

The rest of the world faces tough challenges currently, but shows glimmers of a promising future (0 percent at current exchange rates; 2 percent at constant exchange rates). The Middle East is still rather depressed, despite strong interest in Iran. In Australia, the luxury market will remain healthy. Meanwhile, Africa has the potential to be the breakout star in the coming years.

Luxury Trends Through 2020

Bain anticipates the personal luxury goods market will continue measured growth of 2-3 percent through 2020, reaching an estimated €280-295 billion in revenue. However, that outcome is heavily contingent upon the continuous growth in Mainland China. Chinese shoppers – particularly the middle class – are expected to make up approximately 34 percent of global luxury consumers in the next four years, well ahead of American and European consumers. Recovery among mature market consumers, due to luxury brands’ renewed efforts to regain consensus and trust, will also help propel the market forward.

Around the world, younger generations continue to outspend Baby Boomers across all personal luxury goods categories. Growing spending among Generation X shoppers, as a result of changing consumption habits, and the increasing growth Generation Y, driven almost entirely by the Chinese middle class, will pump an estimated 50 million new consumers into the market.

“The luxury market will continue to receive a substantial boost from Generation Y and Generation X,” said Federica Levato, who co-authored the report. “Together with Generation Z, which will continue to make up just a sliver of luxury spending, these younger consumer will comprise three-quarters of the global luxury market by 2020. Therefore, the market cannot afford to ignore them or their preferences for accessible yet content-rich products and brands.”

Regardless of age or generation, Bain found that luxury consumers still flock to retail channels, which will make up about 40 percent of the market in 2020, despite rationalization and increasing growth from airport and outlet channels that will represent 7 and 8 percent of luxury sales, respectively. E-commerce is also rapidly gaining ground on traditional channels at 15 percent compound annual growth revenue across formats and models, with new ones emerging all the time.

Luxury Brands Hold the Future in Their Hands

“The future market scenario will be inevitably shaped by luxury brands’ strategic decisions across various levels,” said D’Arpizio. “While customer strategy, branding and story-telling, omnichannel distribution and pricing remain at the top of the CEO agenda for luxury companies, the best brands also implement 'locally global' value propositions and develop, grow and retain best-in-class talents to win in a more sluggish market.”

Bain identified key actions luxury brands can take to re-acclimate to the new normal they will face over the next several years:

• Markets and Consumers: Enhance personalized customer experience in-store and locally tailor brands’ value proposition on all key dimensions (assortment, buying, marketing) to win emerging consumers while regaining disillusioned mature shoppers.
• Route-to-Market: Refocus distribution strategy and footprint with an eye toward the future and evolving the current model into value-driven “fast luxury.” Brands also need to push holistic consumer engagement through all touch points.
• Value Creation: Master brand content and story-telling.

To request a copy of the report or schedule an interview with Claudia D’Arpizio or Federica Levato, please contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102.

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