Emerging Markets are still the drivers of the Luxury Market
Buoyed by strong first quarter momentum in the U.S. and Europe and continuing growth in China and other fast growing luxury markets-including Russia, Brazil and the Middle East-worldwide luxury sales are projected to grow to 185 billion euros in 2011, up eight percent from 172 billion euros in 2010; this according to Bain & Company, the leading advisor to the global luxury goods industry, in its “Spring 2011 Update: Luxury Goods Worldwide Market Study,” which was unveiled at a web conference today hosted by Fondazione Altagamma (the Italian luxury goods industry trade association). After declining by 17 billion euros over the course of 2008 and 2009, a strong 2010 closed with higher-than-expected holiday sales (up 14 percent versus 2009), bringing the luxury goods market to 172 billion euros, surpassing its prior peak of 170 billion euros in 2007.
Bain finds that department stores and direct-owned luxury stores saw continued double digit sales increases in February and March versus 2010, selling out on much of their Spring/Summer 2011 inventory. Additionally, stores have placed robust orders for the Fall/Winter 2012 seasons and have restocked sold-out inventory levels, especially in accessories, leather goods and hard luxury categories such as jewelry and watches. Retailers interviewed for the Bain study expressed a high level of confidence that consumers will keep coming into stores and continue making purchases with the same vigor that preceded the global financial crisis.
“Luxury has made a brilliant return to the retail stage, but the script has been re-written,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “More demanding customers, generational shifts, new loyalty rules, an increasingly integrated offline and digital customer experience and the continued growth of China and other fast-growing markets are transforming the luxury industry.”
Bain forecasts that sales in the Americas for 2011 will grow by eight percent, to nearly 52 billion euros. The U.S. will remain the world’s largest luxury goods market. China will see 25 percent year-over-year growth this year, putting Greater China (including Hong Kong, Macao and Taiwan) in a strong position to exceed sales in Japan for the first time. Growth in Europe will reach seven percent in 2011 and Japan will see declines of five percent, due, in part to structural decline and also the impact of the recent earthquake. However, the Bain study estimates that Japan’s luxury sales will stabilize starting in the third quarter of 2011, as consumption recovers and as reconstruction drives GDP growth. In fact, even as Tokyo stores reopened in the two weeks after the earthquake, brands reported a quick resumption of sales to expected levels, with little impact in southern cities such as Osaka.
The study also predicts that growth in emerging markets will remain the focus of luxury manufacturers for the next two to three years. Lifestyle changes have driven a return of luxury goods sales in Russia (five to 10 percent annual growth). New store openings will fuel growth in the Middle East (10 percent to 12 percent), while Brazil will see heavy investment by international brands (10 percent to 15 percent). China’s fast-growing wealth will fuel both same store sales growth and new store openings.
“The emerging market consumer continues to create the most exciting challenges for our industry,” said Santo Versace, Chairman of Fondazione Altagamma. “Even as we adjust to the maturing of the North American and European markets, consumers in countries like China are becoming more demanding and more sophisticated in their luxury tastes.”
The Bain study concludes with a look ahead to 2014 and beyond, estimating a 214 billion euros to 221 billion euros market within three years, and recommending three keys to “owning the luxury goods future”:
Deep focus on emerging markets-penetration; route-to-market; a tailored value proposition
Adaptation to the continuing generational shift-baby-boomers retiring; Generation Z (always connected)
Continuous enhancement of the customer experience-increase loyalty and satisfaction; integrated online and offline experiences; unrelenting service
“Emerging markets are doing more than generating revenues,” concluded Bain’s D’Arpizio. “New consumers are also forcing luxury brands to become much more nimble in the merchandise selection and customer experience they offer to increasingly diverse consumers.”