MILAN — The luxury goods sector is expected to log only a 2 percent gain in 2013 revenues to 217 billion euros, or $299.5 billion at current exchange, hurt by second- and third-quarter results that are “close to stagnation” and by currency headwinds, according to the most recent study by Bain & Co. and Fondazione Altagamma, the Italian luxury goods association, presented on Monday morning here.
“The super-growth of the past few years was destined to calm down,” said Claudia D’Arpizio, a partner at Bain & Co. “The positive aspect for luxury brands is that now they can shift their attention from keeping up with the present to planning the future.”
At constant exchange rates, revenues of the luxury goods industry would have grown 6 percent, compared with 5 percent the previous year. The devaluation of the yen is responsible for more than half of this impact.
Upturning a recent trend in the past few years, the Americas grew faster than Mainland China, showing a 4 percent gain, compared with the latter’s 2.5 percent increase. This reflects the increasing number of Chinese tourists visiting cities such as Las Vegas and Los Angeles. A number of stores that opened in secondary U.S. cities also helped drive the growth. In 2013, the Americas are expected to post sales of 69 billion euros, or $95.2 billion, in 2013.
Bain and Altagamma dubbed Southeast Asia the new “emerging Asia,” climbing 11 percent, boosted not only by the historic Singapore hub, but also by Malaysia, Vietnam and Thailand.
In terms of categories, accessories are expected to show the biggest growth — up 4 percent — accounting for 28 percent of business, compared with apparel, up 1 percent, and accounting for 25 percent of total business.
Greater China is expected to register a 4 percent increase in sales in 2013. D’Arpizio took pains to dismantle “a widespread hysteria,” concerning China. “There is no China bust, it is one of the most important markets, even just in terms of demographics, and it’s still growing, it still has an enormous potential. Luxury brands have passed from a strong expansion phase to the consolidation of positions and maintaining their network,” she explained. D’Arpizio conceded Mainland China is becoming more challenging as consumers become more sophisticated, and that the government crackdown on public officials’ spending on luxury and anticorruption campaigns are still negatively affecting gifting. However, Chinese consumers are increasingly buying luxury goods abroad, and new channels are rapidly emerging such as e-commerce, multibrand formats and premium outlet centers.
In addition to a “logo fatigue,” aspirational consumers are shifting to more accessible luxury-premium brands, benefiting from the rise of a new middle class. Chinese consumers are the number-one luxury audience, reaching almost 30 percent of the global market, between local and touristic spending.
In 2013, tourists are expected to help lift sales in Europe by 2 percent. Tourists account for half of the business in Italy, 55 percent in the U.K. and 60 percent in France.
Sales in Japan are seen to drop 12 percent, although in real terms Japanese spending is expected to increase 9 percent after many years of stagnation, affected by the strong devaluation of the yen.
The Middle East is expected to grow 5 percent, with Dubai the most important shopping destination in the area, while Saudi Arabia is the second-biggest market for luxury in the region.
Africa is “emerging with high attractiveness with high potential spending,” showing an 11 percent growth with new markets such as Angola and Nigeria, in addition to the more consolidated Morocco and South Africa.
D’Arpizio identified retail as “the sole growth driver,” despite a decelerating organic growth, especially in emerging markets, with the focus shifting on store renovations, relocations or expansion in mature markets. She also noted an increasing leverage of flexible temporary formats, such as pop-ups.
“The unstoppable run of online luxury determined a tenfold growth in 10 years, and luxury brands are working on aggressively entering the online arena, leveraging Internet for both sales and communication,” said D’Arpizio, although she highlighted the fact that 40 percent of brands still do not sell online. The online luxury goods market is expected to total 9.8 billion euros, or $13.5 billion, up 28 percent from the previous year, and accounting for 5 percent of total luxury goods sales.
M-commerce represents almost one-third of traffic and more than 10 percent of sales for some brands, and the off-price segment still represents around 30 percent of the market, pushed by “blossoming flash-sale sites and in-season promotions by department stores,” said the study. The online luxury market is “enormously skewed to the U.S.,” where department stores are segment leaders. Accessories have the highest online penetration, with shoes above 10 percent.
The industry is dynamic and is being reshaped by new rules, said D’Arpizio. “Women are buying more complex watches, while men’s purses are a new overwhelming phenomenon in leather goods. Women are ever more empowered in emerging markets, while men in mature markets are approaching luxury goods more and more.”
The priority for companies, she concluded, is to increasingly get to know their customers. “It’s all about the consumers and much less about the markets. The Chinese are confirmed as the top and fastest-growing nationality despite a significant deceleration of domestic consumption. They are headed to becoming nearly one-third of the luxury market consumers, accounting for 29 percent of total.” Also, she said luxury companies have been too focused on emerging markets, and should return to eye more mature ones.
Looking ahead, there are “healthy expectations” for the medium term. The study forecasts 3 to 5 percent growth at constant exchange rates in the 2013-16 period, reaching sales of 245 billion to 255 billion euros, or $338.2 billion to $352 billion, in 2016.
In addition to personal luxury goods, the study also researches the cars, wine and spirits, hotels, gourmet food, design furniture and yacht sectors, which are all expected to show gains in 2013. Cars, wine and spirits and hotels are expected to overtake spending on personal luxury goods, contributing to a total business of 800 billion euros, or $1.1 trillion, up almost 6 percent compared with the previous year.
According to the Altagamma Consensus study, also presented on Monday, vice chairman Armando Branchini said average 2013 earnings before interest, taxes, depreciation and amortization of luxury goods companies are expected to climb 8 percent.
The study expects positive signals from all product categories in 2014. Apparel is forecast to gain 5 percent; jewelry and watches 6 percent; shoes and accessories 7 percent, and fragrances and cosmetics 4 percent.
North and Latin America are expected to increase 5 and 7 percent, respectively; Asia and the Middle East, 10 percent each; Europe, 4 percent, and Japan, 2 percent.
The conference was held as the industry is gearing up for Milan’s international 2015 Expo, and Andrea Illy, president of Fondazione Altagamma, noted that the association, with other industry associations and the city, are working on marketing initiatives and re-branding Milan.