Paste your Google Webmaster Tools verification code here
June 4, 2017 | 15:10 | Dubai
The luxury market is set to get back to growth in 2017. A firm Chinese rebound with purchasing both at home and overseas as well as increasing customer confidence in Europe will boost global personal luxury goods market growth by 2-4 percent (at constant exchange rates) in 2017 to €254-259 billion. As the gap between winners and losers continues to widen, brands must rethink their strategies and adapt to a millennial state of mind, which will be a key driver to push the market to €290 billion in sales by 2020.
These are the key findings from Bain & Company, the world’s leading advisor to the global luxury goods industry, in the “Bain Luxury Study 2017 Spring Update” released here today in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
“This year looks promising so far,” said Claudia D’Arpizio, a Bain partner and lead author of 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.”
Regional dynamics in the luxury market
In the Americas, the U.S. luxury market continues to underperform. A strong dollar, ongoing political uncertainty and struggling department stores combine to create an uneven outlook for 2017. Latin America is supported by some local consumption, while Canada remains dynamic but still poised to slow. The region is expected to grow between -2 to 0 percent (at constant exchange rates).
Europe is in the midst of recovering from decreased tourist flows in 2016 and is regaining confidence among local consumers. Spain, perceived as a safe destination, and the UK, where the pound is substantially weaker than this time last year, stand out as bright spots. Bain forecasts growth of 7-9 percent (at constant exchange rates) for the region.
Mainland China is also rebounding, as local consumers demonstrate a strong preference for purchasing luxury goods at home, which is expected to drive growth of 6-8 percent (at constant exchange rates). However, Chinese tourists will still account for a sizable portion of luxury purchases abroad.
Sluggish and mature, Japan remains a safe market for luxury brands. Local consumption supports a market where tourism has decreased, leading to flat growth for the year.
Across the rest of Asia, the environment remains difficult. Bain believes the market in that region is set to shrink by -2 to-4 percent (at constant exchange rates). Hong Kong, Macau and Singapore are on the mend, but Taiwan and Southeast 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 (at constant exchange rates), with Middle East remaining stagnant (outside of Dubai).
“For luxury goods companies in the Middle East, the challenge is two-fold. On one hand, the market is difficult with several segments declining for the first time in 10 years. On the other hand, they need to adapt to the rise of the Millennials and make sure they cater to the needs of their next generation of consumers,” said Cyrille Fabre, partner and leader of Bain’s Retail and Consumer Products practices in the Middle East.
Five Things to Focus On in 2017
Bain’s research identifies five key topics that will drive the market for personal luxury goods going forward: the U.S. market landscape, Chinese increased purchases at home and abroad (mostly in Europe), ever-growing influence of digital, a widening gap between winners and losers, and the new wave of millennial consumers.
While they currently account for 25% of the market, in the Middle East, millennials are of key importance. But, luxury goods companies also need to adapt to the more widespread ‘Millennial State of Mind’ that has influenced a broader set of consumers across older generations. To do this, brands need to engage consumers more actively online in order provide deeper experiences and create a story around the product,” added Mr. Fabre.
Looking ahead to 2020, Bain expects mild growth of 3-4 percent per year (at constant exchange rates) as the market size increases to €280-290BN.
“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.”
To stay ahead and unlock the potential, Bain advises luxury brands to:
About Bain & Company
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, information technology, organization, private equity, digital transformation and strategy, 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 55 offices in 36 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.ae