MILAN — The luxury world has surpassed the one trillion-dollar mark.
According to Italian association Fondazione Altagamma and Bain & Co., the global market in luxury — which includes everything from hotels and private jets to yachts and art — is expected to log 14 percent growth in 2015, reaching more than one trillion euros, or $1.1 trillion. At constant rates, the increase stands at 5 percent.
“Overtaking the one-trillion-euro threshold is a cornerstone for our industry,” said Armando Branchini, vice president of Altagamma. “European companies this year will show excellent results, but moderation is necessary….A situation of moderate growth requires companies to significantly reconsider investment strategies: to pursue an organic growth, great discipline on the use of liquidity, reduction of the cost of capital.”
Currency fluctuations are expected to have a major impact on the luxury goods market this year and beyond, but are only a part of an increasingly complex market, according to Claudia D’Arpizio, partner at Bain and the main author of the latest Worldwide Markets Monitor 2015 presented on Thursday.
The luxury goods market continues to grow, but only moderately, according to the study, which shows a slowdown in organic growth. Luxury goods are expected to log an increase of 13 percent at current exchange, but only between 1 percent and 2 percent at constant rates, reaching 253 billion euros, or $279.1 billion. Dollar figures are converted from euros at current exchange rate. In May, the study’s Spring Update forecast growth between 2 and 4 percent.
“The currency strategies of countries have been moving masses of consumers from market to market. It has been a variable that has very much influenced the numbers,” D’Arpizio said. “Currency fluctuations changed the map of luxury consumers, who know about different prices and plan their shopping trips depending on the prices.”
Online sales and jewelry showed the strongest growth this year, as well as spending by Chinese tourists. The e-commerce business nearly doubled since 2012, showing a 40 percent increase in 2015, and accounting for 7 percent of the total.
D’Arpizio said the main challenge luxury companies will have to face is to define a “smarter pricing model,” also in light of the increasing strength of e-commerce and global tourism. “The constant price increases over the past 10 years, aimed at a more exclusive positioning, is beginning to turn against luxury brands,” she observed. “They must recover credibility and recreate loyal relationships with consumers in a long-term strategy, rather than simply adjusting prices as a reaction to market fluctuations.”
For 2016, growth expectations hover between 3 percent and 3.5 percent at constant exchange, according to the Altagamma Consensus study, also presented Thursday.
“Over the past few years, we defined the slowdown of the personal luxury goods market as luxury’s new normal. Now we start to feel the impact of this slowdown,” D’Arpizio said.
In 2015, at constant exchange rates, Europe grew 5 percent and Japan 9 percent, boosted by a new local consumer confidence and Chinese tourists. “Japan has become the favorite shopping destination for the Chinese,” D’Arpizio said. She also said South Korea is a “shining star,” growing 4 percent.
Mainland China posted a 2 percent decrease, but the Chinese continue to be the main luxury clientele, representing 31 percent of the global total. Japan, Korea and Europe are the countries benefiting the most from Chinese spending.
America was flat, hurt by the “super-dollar,” although Americans are shopping more in Europe. “America is not great, and perhaps will be worse by the end of the year. The scenario is not far from what we saw in 2009,” D’Arpizio said. “The strong dollar is hampering spending. The Chinese go visit, but they don’t buy there.”
She noted that the Chinese stock market crisis impacted consumer confidence in the U.S. more than in China and that America was also affected by the drop in oil prices. That said, the American market remains the biggest, reaching 79 billion euros, or $87.1 billion.
Russia decreased 25 percent.
Retail sales were up 20 percent, accounting for 34 percent of the total. D’Arpizio noted that companies are now investing on “maintaining their existing network,” slowing down the opening of new stores.
Jewelry is the category showing the strongest performance, up 6 percent at constant exchange rates and 18 percent at current exchange, seen as a safe investment, followed by footwear. That category grew 6 percent at constant rates and 16 percent at current exchange. “Brands worked on branding their footwear, which has become more recognizable, and the price of handbags rose much higher,” explained D’Arpizio. Sales of watches decreased 6 percent.
D’Arpizio remained positive looking ahead. “The fundamentals are strong and Western economies are picking up,” she said.
During a round-table discussion, Laudomia Pucci said “50 percent of Emilio Pucci’s customers are globetrotters. Where are they going? This is what we have to follow. And consumers are very prepared, we have to service them, and increase the value of the product.”
Francesco Trapani, chairman of the Roberto Cavalli group and executive vice president of Cavalli’s parent private equity fund Clessidra, said the first nine months of the year showed “good results” in general, while admitting that currency exchange rates helped lift gains. He also characterized the Chinese as the “driving force that continued to grow at a global level,” and cited “the Arabs, increasingly more important, in particular for the hard luxury category, and they grow more quickly.”
Trapani said it was hard to provide a forecast for 2016, which he does “not expect to show an extraordinary market, but not disastrous — moderate.” On the sidelines of the conference, the executive said Asia continues to be “an enormous market” and one of the priorities for Cavalli’s expansion. He said chief executive officer Renato Semerari is starting to restructure and reorganize the company, a step that will involve negotiations with unions and employees in light of a possible “downsizing” in Florence, likely to affect 70 or less workers.
According to the Consensus study, ready-to-wear is expected to gain 3 percent in 2016; accessories and hard luxury are forecast to grow 4 and 3 percent, respectively, and fragrances and cosmetics, 4 percent. Earnings before interest, taxes, depreciation and amortization are expected to log in a 4 percent gain in 2016.
Global Blue resented its own research at the conference. Tax-free shopping boomed in Europe in the first nine months of 2015, showing a 26 percent growth compared with the same period last year. The Chinese topped the list, representing 36 percent of the total in Europe, and Americans showed a 57 percent gain, accounting for 5 percent of the total. Italy is among the favorite destinations, where Chinese tax-free consumer spending jumped 71 percent, compensating for a 42 percent decrease of Russians, who follow as the second nationality nonetheless.