MILAN — The luxury goods market is expected to continue to grow as global companies adapt to change and the challenges ahead — including building solid relations with new clusters of customers.
According to the 2019 edition of “Global Powers of Luxury Goods,” a report by Deloitte Global, luxury brands have started to develop relationships “with a new consumer class who is likely to become or remain affluent or ultra-affluent in the future” — the HENRYs (High-Earners-Not–Rich-Yet) who earn between $100,000 and $250,000, though according to Equifax’s much broader definition, HENRYs are aged on average 43, with an income of more than $100,000 and investable assets of less than $1 million.
“HENRYs are digital-savvy, love online shopping and are big spenders, in particular the Millennial HENRYs. With HENRYs likely to become some of the wealthiest members of society, the potential benefits of onboarding this demographic to luxury brands’ product and service portfolio are twofold: securing valuable present customers and building client relationships and business with those most likely to be amongst the most affluent consumers in the future. Therefore, luxury brands wishing to target HENRYs must offer inclusive, yet individualized and self-expressive products,” stated the report.
“In an age of fast-changing trends, luxury companies are re-examining the value of brand heritage and history and are adopting an omni-personal approach focusing solely on the new age consumer,” said Patrizia Arienti, Deloitte EMEA Fashion & Luxury Leader. “To accomplish this, they are committed to making significant investments in digital technologies.”
Based on consolidated sales of luxury brands in fiscal year 2017, according to the study, 76 percent of the top 100 luxury goods companies recorded growth in sales in 2017 and nearly half of those registered a double-digit gain year-on-year. The minimum revenue threshold required to enter the world’s top 100 list of luxury goods companies in 2017 was $218 million.
Aggregated revenues totaled $247 billion in the 2017 fiscal year, up 13.8 percent compared with $217 billion in 2016. On a currency-adjusted composite basis, annual growth climbed 10.8 percent — a jump compared with the previous year’s 1 percent growth.
The top 10 companies accounted for 48.2 percent of the total luxury goods sales of the top 100 companies.
Growth of the top 10 outpaced that for the top 100 companies, at 14.2 percent and 10.8 percent, respectively. The top 10 also improved their composite net profit margin to 11.6 percent.
For the third year in a row, the top three groups are in the same position. First in ranking is LVMH Moët Hennessy Louis Vuitton, with sales of $28 billion, up 17.2 percent compared with the previous year, followed by The Estée Lauder Companies Inc., with sales of $13.7 billion, up 15.7 percent. Ranking third is Compagnie Financière Richemont SA, with sales of $12.8 billion, up 3.1 percent, followed by Kering SA, which gained one spot, with sales of $12.2 billion, up 27.5 percent compared with 2016. Luxottica went down one spot, with sales of $10.3 billion, up 0.8 percent.
Chanel, for the first time, revealed its balance sheet and ranked sixth, following the Italian eyewear maker. Luxottica, which has since merged with Essilor, is one of the three main Italian companies in the list, together with Prada in 21st position and Giorgio Armani in 26th.
L’Oréal Luxe ranks seventh, with sales growing 10.6 percent to $9.5 billion, down one spot, followed by The Swatch Group Ltd., down one spot with sales of $7.8 billion, a 5.4 percent gain compared with 2016. Hong Kong-based Chow Tai Fook Jewellery Group Limited ranked ninth, up one spot, with sales of $7.6 billion, climbing 15.4 percent. PVH Corp. ranked 10th, down one position, with sales of $7.4 billion, a 10.7 percent increase.
Combined, the top 10 companies registered revenues of $118.9 billion, a 14.2 percent growth compared with the previous year, and accounting for 48.2 percent of the total, one percentage point more than in 2016.
Together, the Italian companies that were part of the top 100 list account for 14 percent of global revenues, down two percentage points. Italy counts 24 companies out of the 100, and of these, more than two-thirds operated in the apparel and footwear sector. Luxottica, Prada and Giorgio Armani are the three main Italian players in the list and, aggregated, represent almost half of the luxury goods 2017 revenues generated by the Italian companies in the ranking. Moncler is the best-performing company among the Italians, while Furla registers the highest growth rate at 18.7 percent.
Cosmetics and fragrances was the top-performing sector in 2017, with 16.1 percent sales growth, which was mainly due to the double-digit year-on-year growth of seven companies out of the total 11 in the sector. They were followed by jewelry and watches, up 9.7 percent, and clothing and footwear, up 3.2 percent. Handbags and accessories grew 1.5 percent.
Six companies from the Asia Pacific region are now present in the list of the 20 fastest-growing firms, mainly in the jewelry sector.
The deceleration in main markets, particularly China and the Eurozone, has not impacted the demand for luxury goods, said Arienti, expecting future growth. “Consumption of luxury goods in Europe has in fact remained stable thanks to favorable exchange rates and to tourist spending. The growing influence of the Asia area is not to be overlooked, both in terms of companies’ financial results as well as in terms of demand. Asia is actually the growth driver in this sector with Chinese consumers that lead luxury goods consumption both locally and abroad,” said Arienti.
Analyzing the top 20 fastest-growing companies, Canada Goose Holdings Inc. ranks first, with a 46.4 percent sales growth in 2017 and a compound annual growth rate of 42.6 percent in the 2015-to-2017 period. Coty Luxury follows with 25.1 percent growth in 2017 and a CAGR of 32.2 percent. Furla SpA ranks third, with a CAGR of 21.5 percent and sales rising 18.7 percent in 2017.
Eighty-eight of the top 100 luxury goods companies are headquartered in nine countries, and they account for 93.4 percent of top 100 luxury goods sales. The “French super-group” model is winning, according to the report, as France scored the best growth in 2017, up 18.7 percent. The weight of the seven French companies, from LVMH and Kering to L’Oréal, represented 23.5 percent of the total. Aggregated, 14 American companies ranked second, accounting for 19.5 percent of total revenues and growing 9.7 percent in 2017. France has the largest companies with an average size of $8.29 billion, which is much higher than the average top 100 size of $2.47 billion.
Arienti underscored that once again, the number of Italian companies that were part of the top 100 list is the highest at 24, but they face the challenge of a “constant change of the competitive scenario.” Arienti believes that Italian luxury goods companies will be asked to blend “innovative business models with tradition and product exclusivity” synonymous with Made in Italy production in order to face “market dynamics.”