MILAN — “From hell to heaven in 18 months,” said Bain & Co. partner Claudia D’Arpizio of the luxury goods industry’s trajectory from the gloom of the 2009 recession to the recovery in 2010.
“The market survived its worst crisis in 15 years and now seems to be in good shape,” D’Arpizio said in presenting Bain’s study on Monday during a convention organized by Italy’s luxury goods association Altagamma.
Bain estimates the personal luxury goods category will grow 10 percent in 2010, reaching 168 billion euros, or $234.7 billion at current exchange, partly driven by “a strong rebound in the confidence of luxury consumers,”and “positive exchange rate effects.”
In 2009, the category was worth 153 billion euros, or $212.6 billion at average exchange, down 8 percent compared with 2008. D’Arpizio predicted the sector will grow by between 3 and 5 percent in 2011, with sales of 173 billion to 176 billion euros, or $241.7 billion to $246 billion.
The recovery in 2010 was “more than proportional to the rebound of the economy,” led by a 12 percent gain in sales in the U.S. market — “a surprise” performance, said D’Arpizio, and by a 30 percent rise in Mainland China, with sales of 9.2 billion euros, or $12.8 billion. Mainland China will become the third-largest luxury market in five years, according to the study. Greater China, including Hong Kong, already ranks number three, showing 23 percent growth in 2010. Sales in Europe are expected to rise 6 percent, while Japan is still not showing any signs of recovery, registering a 1 percent drop in sales in 2010, hurt by a “structural crisis,” unemployment and department stores losing market shares, said D’Arpizio.
In 2010, apparel sales are estimated to grow 8 percent to 45 billion euros, or $62.8 billion, showing a “strong positive rebound,” and an “overperformance” of men’s wear caused by an “uptrade of casualwear,” said the study. The footwear category is expected to grow 16 percent to 9 billion euros, or $12.5 billion, driven by “fashion-forward styles” and a “sneakerization” of men’s shoes.
D’Arpizio said leather accessories are the “champion category,” the only one posting growth in 2009 (up 2 percent). In 2010, leather goods are expected to surge 20 percent to 23 billion euros, or $32.1 billion. In particular, the study shows a 22 percent spike in the U.S. for this category, men spending as much as women, and a “boom driven by the relaunch and modernization of icons,” in addition to new small, niche brands appearing on the horizon. Jewelry and watches are expected to grow 16 and 12 percent, respectively, in the year, driven by sales in Asia and restocking for the holiday season. Fragrances and cosmetics “were less resilient than expected,” said D’Arpizio, with a 4 and 3 percent growth in 2010, respectively. Restocking and product launches, however, are mainly expected in the second half of the year.
Retail sales may rise 20 percent in 2010, performing better than the wholesale channel, which is expected to grow 6 percent. Bain projected 350 openings by the end of the year, mainly in Asia and the U.S., but also said online luxury shopping is “becoming a truly relevant channel,” with sales expected to rise 20 percent. Travel retail, accounting for 10 percent of the market, was more resilient due to Chinese traveling around the world.
“Clear winners are big brands that are also becoming bigger,” concluded D’Arpizio, as these companies can count on heftier financial resources to invest in China and a more structured management organization. “Also, psychologically, customers have been turning to brands that are leaders in their categories,” she said. She noted that to succeed in the next 15 years, companies need to target China, as a symbol for all emerging markets, with a “tailored value proposition,” to be aware of the global generational shift and enhance the customer experience.
In a separate study, Altagamma predicted the industry’s earnings before interest, taxes, depreciation and amortization will rise 15 percent in 2011.
Armando Branchini, general secretary of the association, said all geographic markets are expected to grow. Most notably, sales in Asia are forecast to rise 15.8 percent, followed by the Middle East and Latin America, showing gains of 11.5 and 10.8 percent, respectively. Apparel will grow 7.5 percent and jewelry and watches 8.5 percent, followed by shoes and accessories, up 8 percent, according to the study.
Also, Santo Versace, president of Altagamma, said the foundation has joined forces with its equivalent associations in France and England, Comité Colbert and Walpole, to create the European Cultural and Creative Industry Allianceto “talk to institutions at a European level with one voice.”
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