MILAN — In a further sign that luxury goods continue to buck the global economic downturn, the market is expected to grow 13 percent to sales of 700 billion euros, or $971.2 billion at current exchange, this year, according to research by Bain & Co. and Fondazione Altagamma.
This story first appeared in the October 18, 2011 issue of WWD. Subscribe Today.
The research covered all categories of luxury, including cars, furniture, wine, travel and yachts, as well as fashion.
Bain underscored the relevance of China and Asia for the cars, hotels and personal luxury sectors; Brazil for luxury wines; Russia for high-end spirits and gourmet food, and India for design furniture.
Also, “men are spending more on creams and taking more trips to stores per year, and women are increasingly buying Ferraris and drinking whiskey,” said Bain & Co. partner Claudia D’Arpizio, identifying a “convergence in female and male luxury consumption.”
Other significant trends are: retailing and branding across all market segments; strong demand for eco-health products, and younger generations being “more conscious, impatient and cherry pickers.” Also technology is playing an increasingly significant role, enhancing customer experience and driving innovation. For these reasons, “increasing complexity demands excellence across levels for an upgrade of luxury experience,” said D’Arpizio. “Strong competition at brand level is driving increasing concentration at group level, with the superpower of luxury groups.”
This year will close with “yet another peak in personal luxury goods,” according to the study. The personal luxury goods business — which includes fashion, beauty and watches and jewelry — is expected to reach sales of 191 billion euros, or $265 billion at current exchange, up 10 percent compared with 2010. At a constant exchange rate, sales in 2011 are expected to gain 13 percent in 2011.
Bain attributed this performance to “a new growth phase for local consumption in mature markets,” booming sales in China and “milder than expected” consequences following the earthquake and nuclear disaster that took place in Japan in March.
No slowdown is expected for the upcoming holiday season.
The year 2010 hailed the first signs of economic healing after the 2009 economic crisis, with a strong rebound in consumer confidence, an increase in channel and wardrobe restocking, and growth driven by Chinese customers. In 2010, sales rose 13 percent to 173 billion euros, or $228.3 billion at average exchange rates for the period.
Last year, retail, with 25 percent growth, was still outperforming wholesale, which rose 10 percent, but the gap is narrowing. In 2011, retail is expected to gain 14 percent and wholesale 9 percent. In 2010, U.S. department stores were recovering and restocking, while the wholesale channel gained confidence in 2011.
Online shopping surged 25 percent in 2010 and is estimated to also grow 25 percent in 2011, for a total estimated value of 5.6 billion euros, or $7.7 billion, in 2011.
Bain underscored the increasing influence of social media and digital marketing activities, which “improve customer experience and positively affect online sales of luxury goods.”
It also noted the increasing power of multibrand Web sites, which offer strong editorial content and excellent service, which enhance customer loyalty.
Asia continues to drive business, with China showing no sign of slowing down. Sales in the Asia-Pacific region are expected to rise 25 percent in 2011, led by China, where sales are forecast to jump 35 percent, reaching 12.9 billion euros, or $17.9 billion, fueled by store openings. Bain said China alone had almost as many new openings as the U.S. and Europe combined. “In 2011, organic growth finally becomes a relevant phenomenon,” as expansion reaches out to second- and third-tier cities, the report said. Of note is also the fact that many brands are buying back their distribution and licenses in China to regain control.
Sales in Japan are expected to gain 2 percent, and business in the Americas will grow 8 percent to 56 billion euros, or $77.7 billion, lifted by the leather goods category and increased penetration in second- and third-tier cities in the U.S. Bain highlighted the “emerging trend of turning department stores’ doors into concessions so as to gain control over a strategic channel.” It also noted the growing number of Chinese tourists in New York and Hawaii. Brazil was singled out as the driving force in the growth of the South American market, despite high duties paid by luxury players there.
After being favored by a weaker euro currency in 2010, Europe is expected to grow 7 percent in 2011.
In terms of categories, hard luxury’s rebound and leather accessories helped boost sales in 2011. Hard luxury is expected to grow 18 percent. Apparel and accessories are expected to grow 8 and 13 percent, respectively.
Boosted by demand in emerging countries and restocking, watches and jewelry picked up in 2010, gaining 23 percent, and is expected to show 18 percent growth this year, also lifted by an increased number of retail stores carrying this category. Perfumes and cosmetics is forecast to rise 3 percent.
According to the study, “the male market is over-performing women’s in all categories,” and “all luxury players are focusing more and more on men categories…and targeted Asian product offer.”
In its own study, Fondazione Altagamma, Italy’s association of luxury goods brands, predicted a 10 percent growth in earnings before interest, taxes, depreciation and amortization (EBITDA) for the worldwide luxury industry in 2012.
Next year, Latin America and Asia are expected to rise 10 and 16.5 percent, respectively. The U.S. is forecast to gain 6 percent.
As for products, all sectors are due to grow in 2012, with leather goods, shoes and accessories and jewelry-watches the sectors with the highest growth ratio.
Andrea Guerra, chief executive officer of Luxottica, underscored how the industry is for the first time reaching out to “2 billion customers. Nobody ever had this opportunity. It’s a gigantic audience, a huge opportunity, but also a huge responsibility.” For this reason, he urged his peers to remain focused. “We must be pioneers, and size counts for this. We must take risks and not rest on our laurels.” Guerra said there are “huge countries” opening up, such as Brazil, which he conceded was a prospect for luxury companies, but warned against underestimating the complexities of such a market, with its many different regulations.
Brunello Cucinelli was upbeat about the performance of his namesake company, which is expected to close 2011 with sales up about 20 percent. He confirmed his interest in launching an initial public offering next year. “We are ready to list in the spring,” he said. Cucinelli said he has not determined what percentage of the family-owned firm he will place on the market, but reiterated the listing will be in Italy.