MILAN — Luxury goods sales are expected to grow 4 percent this year as a result of brisk 2009 holiday shopping, a recovery in consumer confidence in the U.S., a return to international travel and growing business in China.
According to a study by Bain & Co. presented here on Friday at a conference organized by Italy’s luxury goods association Fondazione Altagamma, industry revenues this year are expected to reach 158 billion euros, or $214.4 billion at current exchange, compared with 153 billion euros, or $212.6 billion at average exchange, in 2009. The positive outlook for this year echoes strong results posted in the first months of the year by groups such as LVMH Moët Hennessy Louis Vuitton and contrasts with the 8 percent decline in revenues posted in 2009.
“We expect a growth between 5 and 10 percent in the first half of 2010, followed by a slower but still positive second half,” said Claudia D’Arpizio, a partner of Bain & Co. Italy.
Armando Branchini, executive director of Altagamma, said “bigger is better,” noting how larger companies with stronger management structures weathered the 2009 storm better than smaller ones. Only 2 percent of the 220 brands studied by Altagamma showed a 5 percent growth in 2009, and these accounted for 10 percent of the overall market. Brands that declined by more than 15 percent accounted for half those studied, yet represented only 20 percent of sales.
For this reason, D’Arpizio said as “megabrands capture more market shares, 2010 will likely see more luxury mergers and acquisitions and IPOs.”
Although it will take at least two years to reach volumes comparable with those of 2007, D’Arpizio said the industry “picked up six months in advance compared to what we thought last year.” He attributed this to a quicker rebound of the American market, also helped by a more stable political scenario; growing business in China and Asia; resumed international travel; an end of destocking, and luxury shame fading away. In its study, Bain said international air traffic is expected to grow 4.5 percent this year, after a 4.2 percent drop in 2009, and that luxury hotel occupancy, the performance of U.S. luxury department stores and luxury car global sales are picking up. Globally, gross domestic product projections for 2010 are up 4.3 percent.
All product categories are expected to grow this year. Apparel, watches and jewelry are forecast to show a 4 percent gain in 2010, and accessories, shoes and leather goods are expected to advance 5 percent. Perfumes and cosmetics likely will grow 2 percent. By comparison, apparel sales last year dropped 10.5 percent; accessories, 1.5 percent, and hard luxury, 17 percent. Perfumes and cosmetics declined 4.5 percent.
Geographically, China and Asia, excluding Japan, are expected to continue to drive the industry’s growth, rising 15 and 10 percent, respectively. Revenues in the U.S. and Europe are forecast to advance 4 and 3 percent, respectively, while sales in Japan likely will post a 3 percent drop. D’Arpizio, however, cautioned that China, a 6 billion euro, or $8.1 billion, market is “not a panacea. It grows for everyone but not in the same way. It depends on the right location, the partner, the approach and the right managerial tools.”
In its own study, Altagamma said earnings before interest, taxes, depreciation and amortization is expected to grow 16 percent this year.