By  on May 3, 2011

MILAN — A strong performance of accessories, a return of men’s wear, a recovery in markets across the world, and a robust holiday 2010 season pushed the luxury goods industry past its 2007 record performance.

According to the spring 2011 update issued by Bain & Co. and Fondazione Altagamma, 2010 showed a peak for luxury goods consumption, with a 12 percent gain to 172 billion euros, or $227 billion at average exchange rates. The study forecasts continued momentum for the industry, which is expected to post global growth of 8 percent in 2011 to 185 billion euros, or $274.3 billion.

In the first few months of 2011, brands have enjoyed double-digit sales growth, reporting strong sales at their own stores as well as wholesale customers buying for the fall-winter 2012 season.

Business in China is expected to rise 25 percent this year. The U.S. market, where department stores are posting positive business trends, is forecast to post an 8 percent increase.

Bain estimates the rest of Asia will grow 15 percent in 2011, while Europe will see a 7 percent increase. Sales in Japan will decline 5 percent, but are expected to stabilize by the third quarter. These trends lay the foundation for the study’s forecast of growth between 5 and 6 percent in the 2011-2014 period, creating a 214 billion to 221 billion euro, or $317.3 billion to $327.7 billion, market by the end of 2014 at constant exchange rates.

The study reflects positive first-quarter results posted by several top luxury groups this year, and bustling M&A activity, as seen with LVMH Moët Hennessy Louis Vuitton’s $6 billion purchase of Bulgari, for example. “Winning in luxury takes more financial muscle than before,” said Bain & Co. partner Claudia D’Arpizio. “Brands have to fund emerging market growth in more markets than ever, while investing in store experiences and products to appeal to new consumers and old. And the biggest companies of all will invest in growth by adding brands to their portfolios.”

Europe and the U.S. showed strong retail results in the first months of 2011, with a boost in fall-winter 2011 orders and a return to restocking after the holiday season. Japan is still stagnating following the March 11 earthquake, tsunami and nuclear disaster, but a recovery is expected by yearend, as the reconstruction will fuel gross domestic product growth.

Growth is expected to continue in China, where brands are seen increasingly taking direct control over distribution; in Russia; in the Middle East, and in Brazil.

“Diversification is the biggest theme for this decade and beyond — appealing to more segments in more markets and using more channels to do it,” said D’Arpizio. “Success is about mastering the shift to a multicultural, multigenerational market.”

Mainland China continues to be the fastest growing market for luxury and will become the third largest luxury market worldwide in five years, according to the study. The region gained 30 percent in 2010 to 9.2 billion euros, or $12.1 billion, and is expected to grow 25 percent in 2011.

Second- and third-tier cities will be the new frontier for luxury brands in Mainland China, but sales will also be driven by strong organic growth. Consumers are becoming more sophisticated, loyal and selective, which is also helping demand for counterfeit products to decrease fast. In-store experience and after-sales service will be other key success factors.

“Chinese luxury shoppers spend a lot of time planning purchases and researching items online,” said D’Arpizio. “They are learning more about brands and products and bringing that knowledge to stores with them, at the same time. Luxury stores are raising the bar in China — better shopping experiences, more skillful sales staff, and a broader selection of merchandise.”

There is also significant investment in digital marketing as luxury consumers are younger there than in other markets.

Overall in 2010, stores began restocking branded jewelry and watches, which helped generate 21 percent growth in the hard luxury category. Accessories surged 17 percent, apparel 10 percent, and perfumes and cosmetics 4 percent. Sales in the Asia-Pacific area rose 23 percent; the Americas grew 16 percent, and Europe 9 percent.

The U.S. remained the biggest market for luxury goods in 2010 with sales of 48 billion euros, or $63.31 billion, followed by Japan (18 billion euros, or $23.74 billion) and China (17.6 billion euros, or $23.21 billion). Emerging markets are increasingly important. Brazil in 2010 accounted for 1.8 billion euros, or $2.37 billion, and the compound annual growth rate there is expected to be 10 to 15 percent. Russia totaled 4.8 billion euros, or $6.33 billion, and its CAGR over the next three years is expected to be 5 to 10 percent. The Middle East in 2010 totaled 4.1 billion euros, or $5.41 billion, with key luxury cities Dubai, Abu Dhabi, Doha and Kuwait City. The region’s CAGR should be 10 to 12 percent. India is expected to grow 5 to 10 percent in key cities Mumbai and Delhi. In 2010, that nation’s luxury goods market totaled 800 million euros, or $1.05 billion.

To Read the Full Article
SUBSCRIBE NOW

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus