MILAN — The luxury goods market is expected to grow 4 to 5 percent globally in 2013 and 5 to 6 percent on a yearly average through 2015, according to consultancy Bain & Co. This represents a slowdown compared with the past three years, when luxury goods showed annual double-digit growth.
This story first appeared in the May 17, 2013 issue of WWD. Subscribe Today.
Claudia D’Arpizio, partner at Bain & Co., presented the spring update of the “Luxury Goods Worldwide Market Study” in cooperation with Italy’s luxury goods association Fondazione Altagamma on Thursday.
This year will be negatively impacted by the fluctuation of exchange rates, said D’Arpizio.
Bain confirmed that luxury revenues gained 10 percent in 2012, reaching 212 billion euros, or $271 billion at average exchange, boosted by “strong growth tailwinds” in the first half of the year. At current exchange, revenues would have grown 5 percent.
“The U.S. is rediscovering luxury, while Europe is struggling,” said D’Arpizio.
The sector is on track to break the threshold of 250 billion euros, or $322.4 billion at current exchange, by mid-decade, said Bain.
Southeast Asia and South America claim top spots as growth leaders while China’s rise of the luxury sector will keep pace with growth in its gross domestic product.
Bain identified tourists and “HENRYs” (High Earnings, Not Rich Yet) as key drivers for growth, as well as the rise of the middle class in emerging countries.
Despite some recovery of spending on apparel, the main drivers remain leather goods and other accessories, especially absolute luxury items, while watch consumption has decelerated sharply as retailers de-stock and Chinese luxury consumers slow their purchases.
In 2013, Bain said the impact of a 12 percent sales growth in Central and South America, in particular in Brazil and Mexico, will result in a 5 to 7 percent gain in the Americas. “High consumer confidence among the affluent, increased store openings in American cities, and intensive investments in linking physical and digital shopping are all fueling U.S. sales growth,” said D’Arpizio. Despite the “major obstacle” of high import tariffs and duties, Brazil is promising as it gets ready for the World Cup and Olympic Games.
China is expected to grow 7 percent, while Southeast Asia is forecast to show 20 percent growth, boosted by new stores and the increasing relevance of second-tier markets, such as Indonesia and Malaysia. Hong Kong and Macau are benefiting from a shift in tourism flows previously targeting Europe.
Japan is seen posting 5 percent growth in light of the country’s devaluation of the yen, which is boosting local consumption, “but luxury brands are still struggling to capture changing consumer behavior, especially that of younger generations, which are not very interested in luxury. Japan is very relevant as a test market,” said D’Arpizio.
Europe remains challenging and is “bracing for a summer spending dry spell,” as tourism is seen slowing, with a flat to 2 percent growth.
Dubai, an attraction for Russians, Indians and Africans, remains at the heart of business in the Middle East, which is growing steadily. “We are seeing a more even distribution of global growth,” said D’Arpizio, adding that the market in 2025 will likely be more than five times larger than in 1995.
Going forward, “superior customer experience, flawless retail management and people excellence will be key for success,” said the research.
“We are entering a new phase in the evolution of the luxury market. More markets, more segments and more diversity of tastes all combine to create more variables to solve for when pursuing the right strategy for growth.”
Altagamma also presented its study, called Consensus, and estimates for 2013, a year marked by a slowdown in growth, but with gains in all categories. Updating data provided in October, the study said Asia will grow less than expected, while the Americas and Japan will show a brisker pace.
In terms of categories, only perfumes and cosmetics will grow more than expected — 5 percent and not 4 percent. Leather goods, shoes and accessories, together with jewelry and watches, are the sectors with the highest growth rate — 7 percent (in October, the Consensus forecast growth of 10 and 8 percent, respectively). This was attributed to China, affected by the anticorruption policies of the new government. In the region, gift-giving accounted for 30 percent of business, but there is now “a healthier development and local consumption is spread over real consumers,” countered D’Arpizio.
Apparel was forecast to grow 6 percent but it is now expected to grow 5 percent.
Asia was expected to grow 17 percent, now adjusted to 10 percent. The U.S. was expected to grow 6 percent but is now expected to grow 7 percent. “The U.S. area is a positive and extraordinary surprise,” said Altagamma’s executive director, Armando Branchini.
“The U.S. is rediscovering luxury,” echoed D’Arpizio. “Consumer confidence is higher and pushing domestic consumption.”
The companies’ average earnings before interest, taxes, depreciation and amortization is expected to grow 9 percent compared with a 7 percent forecast in October. Branchini said the second half of the year will be stronger than the first.