A firm rebound in China with purchasing both at home and overseas is predicted to return the luxury market back to growth this year.
Bain & Company, an advisor to the global luxury goods industry, believes the personal luxury goods market will grow by 2 to 4 per cent this year to €254 billion (US$286 billion) to €259 billion.
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, the company says in the Bain Luxury Study 2017 Spring Update, released in Milan in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
“This year looks promising so far,” says Bain partner Claudia D’Arpizio, the lead author of the study. “After a difficult 12 months, this year’s first quarter 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.”
Mainland China consumers are showing a strong preference for buying luxury goods at home, which is expected to drive growth of 6 to 8 per cent, says the update. However, Chinese tourists will still account for a sizeable portion of luxury purchases abroad.
Sluggish and mature, Japan is still a safe market for luxury brands, according to Bain. Local consumption supports a market where tourism has dropped, leading to flat growth for the year.
Set to shrink
Across the rest of Asia, the environment remains difficult with the market set to shrink by 2 to 4 per cent. Hong Kong, Macau and Singapore are on the mend, but Taiwan and Southeast Asia face decreased tourism, particularly from China and South Korea.
Bain’s research identifies five key drivers for the luxury market: increased Chinese purchases at home and abroad (mostly in Europe), the US market landscape, the ever-growing influence of digital, a widening gap between winners and losers, and the new wave of millennial consumers.
Lower price differentials in China are encouraging a flourishing local market, says the update, while Europe benefits from being an attractive destination for Chinese tourists.
The momentum of digital transformation continues to reshape the luxury industry, and Bain expects online sales to be the leading channel with the highest growth in the coming years, followed by off-price stores. “Physical monobrand stores will be the real playground for luxury brands, although their footprint may be approaching the limit.”
Brands need to refocus on their customers to better anticipate and cater to their needs, says Bain. The younger generation will be key as millennials and Gen Z will represent 45 per cent of the global personal luxury goods market by 2025.
“Still, when analysing behaviours, it is more correct to talk about a ‘millennial state of mind’, which is increasingly permeating across all generations and is thus more a psychographic phenomenon rather than a purely demographic one.”