MILAN — Luxury is seen growing in 2015, although the fluctuations in exchange rates continue to be a significant determining factor, according to the Worldwide Luxury Markets Monitor 2015 Spring Update by Bain & Co. and Fondazione Altagamma presented in Milan on Thursday.

The luxury market is expected to grow between 2 and 4 percent at constant exchange in 2015.

The devaluation of the euro supported luxury’s performance at the end of 2014 and has been even more relevant since the beginning of 2015. Last year is expected to close with industry revenues of 224 billion euros, or $249 billion at current exchange rates. That represents 3 percent gain at current exchange rate and a 4 percent rise at constant exchange rate.

In the first quarter of 2015, sales are seen growing 2 to 3 percent at constant exchange and 12 to 13 percent at current rates.

Armando Branchini, vice chairman of Altagamma and author of the luxury association’s Consensus study, also presented on Thursday, noted reported numbers are “most likely sparkly, but to have a correct indication of the growth of real consumer spending, it’s best to present forecasts at constant exchange.”

Using this parameter, the study forecasts 5 percent growth in Europe and Japan; a 4 percent gain in the Middle East and in the rest of the world; a 3 percent rise in the Americas; and a 2 percent uptick in Asia. In terms of categories, shoes and bags are seen rising 4 percent as well as jewelry and watches, while clothing, perfumes and cosmetics are seen gaining 3 percent.

Claudia D’Arpizio, partner at Bain in Milan, underscored how the luxury consumer “is increasingly more global and aware of the pricing dynamics. The big differences in price between the markets, such as the overdistribution in certain countries and cities, appear unsustainable and require an immediate rethinking of some key industry dynamics.”

Currency fluctuations are seen as a real challenge, impacting price differentials and tourist flows.

Last year, mature markets and the Middle East showed a positive performance, while Asia presented a mixed scenario as Greater China stagnated and South Korea grew briskly.

The Asia-Pacific region registered a 3 percent rise at constant exchange and a 2 percent gain at current exchange. Europe was up 2 percent as the weakening euro boosted tourist flows in the second half. The Americas grew 3 percent thanks to sound local and touristic consumption and the currency effect offset a slight slowdown in the second half. Japan showed a 9 percent growth in real terms, although a VAT increase softened local spending in the second half. At current exchange, sales rose 1 percent in the country.

The rest of the world was up 5 percent at constant and 4 percent at current exchange. A slowdown in the Middle East in the second half was driven by a decline in Russian spending and the oil price drop impacting locally.

According to the study, accessories remained a leading category, rising 4 percent and accounting for 29 percent of business. In particular, shoes stood out. The men’s segment outperformed across the board. Apparel was up 2 percent, accounting for 25 percent of total. Women’s wear was more dynamic while men’s wear was dented by the negative impact of Mainland China. Hard luxury was up 2 percent with watches showing stability.

The euro’s devaluation in the second half versus the Swiss Franc partially offset the worsening situation in Asia. Jewelry outperformed on solid fundamentals. Hard luxury represented 22 percent of total sales, versus a 23 percent in the previous year. Beauty was flat, accounting for 20 percent of total, with cosmetics outperforming fragrances. The U.S. and emerging markets were the main growth drivers in the beauty category.

The study also took the 2012-2015 period into consideration and gave some insight into the full-year 2015.

At constant exchange rates, Europe is seen to grow between 3 and 5 percent; the Americas between 1 and 3 percent; Japan 5 to 7 percent; Asia-Pacific excluding Mainland China, from a 1 percent drop to a 1 percent gain; Mainland China between 2 and 4 percent; and the rest of the world 1 percent.

The weak euro is supporting inbound tourism in the euro zone, especially from China and the U.S. Italy is starting to recover, with a timid rebound of the multibrand channel and Milan is the number one shopping destination, also lifted by initiatives associated with the Expo running until the end of October. Spain has rebounded above expectations, while the Swiss Franc’s appreciation is redirecting touristic and local flows from Switzerland to Italy and France. Eastern Europe is still suffering, with Russia still on a negative trend in 2015.

The U.S. so far is below expectations in 2015 with exceptional cold weather impacting the first quarter and a slow rebound of spending by the upper middle class. Also, a decrease in tourist shopping and the strong dollar was only partially offset by selected price adjustments. A drop in the number of Chinese travelers impacted the West Coast and Hawaii, Las Vegas and New York, while less tourists from Latin America and Russia impacted Miami. E-commerce outperformed across formats.

Japan is the fastest growing market in real terms, becoming the top tourist destination for the Chinese — up 160 percent year-on-year in February 2015. In Asia-Pacific, D’Arpizio sees the year as a transitional one for Mainland China with Hong Kong and Macao the worst performers, Taiwan gaining traction, and a very dynamic South Korea thanks to Chinese flows redirected from Hong Kong.

“This is China’s moment of truth: All key market actors are struggling to revamp the market,” D’Arpizio said, highlighting the still negative impact of clampdown on lavish spending and increasing overseas purchase driven by price differentials and currency fluctuations. “Brands are testing price differentials reduction; real estate developers are turning malls into entertainment spots, and consumers are looking for bargains. While Chinese consumer spending continues to grow, it’s more skewed toward foreign and cheaper shopping.”

Meanwhile, according to a Global Blue study on European tax-free consumption, tax-free shopping is once again growing in Europe, showing a 7 percent gain as of April, despite a decrease in Russian spending. Chinese shoppers are top spenders in Europe, accounting for 31 percent of tax-free shopping.

All European countries grew, with the exception of the U.K., down 2 percent, hurt by the strong British pound and a slight decrease in spending by shoppers from the Middle East. France and Germany were up 15 and 9 percent, respectively. Italy edged up 1 percent.

Over the past 12 months, Chinese tourists represented 32 percent of global shopping and 31 percent in Europe, up 24 percent compared with the same period last year in both markets. The weak ruble affected Russian spending, which was down 28 percent globally and in Europe. However, Russians maintain the second position as top spenders, representing 11 and 13 percent of the global total and in Europe, respectively. From May 2014 to April 2015, American tax-free spending returned to growth, climbing 16 percent, and accounting for 4 percent of the global total and in Europe.

Among other highlights, Taiwanese shoppers increased their spending by 32 percent, while Japanese spending was down 12 percent in the past 12 months due to the weakness of the yen.
Hong Kong citizens buy more tax free in Europe (up 29 percent between May 2014 and April 2015, accounting for 3 percent) compared with the rest of the world (up 27 percent and representing 2 percent of the total).

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