MILAN — Premium and entry-to-luxury brands will drive the growth of the fashion industry in the coming years, according to the seventh edition of  “The Luxury and Cosmetics Financial Factbook 2017” study, released by consulting firm Ernst & Young on Monday.

According to the research — which offers analysis and statistics on current trends based on the data of 31 listed companies from the luxury and cosmetic industries — the expected compound annual growth rate for premium and entry-to-luxury will be around 6 percent for the 2016 to 2020 period. Data for the same period show a 3.4 growth of the luxury industry, instead.

“There’s a deep interest of the financial world toward the new emerging brands of the entry-to-luxury category,” said Federico Bonelli, EY partner of fashion and luxury transaction advisory services. Bonelli said the category is the most interesting one not only for the encouraging projected figures but also because it has still margins to develop in terms of internationalization, retail expansion and digitalization.

The premium acceleration will be boosted by a range of macro-trends, including the price increase of luxury products, which leads high-end brands to be positioned for ultrarich customers, and a different approach of consumers to fashion.

In particular, Millennials increasingly demand a conformity between the price and value of an item and favor a “mix and match” approach in shopping fashion goods, combining luxury apparel with clothes and accessories of premium and mass brands. In addition, consumers are affected by the casualisation of apparel and the boom in the so-called “sneakerization,” the significant trend of casual sports footwear that is also impacting luxury brands. Following the boom, the sneaker market increased its value to three billion euros, accounting for 19 percent of the total shoe segment.

Purchase habits will also be affected by the rise of the urban middle class, which is expected to reach a population of 1.1 billion within the next 15 years, led by emerging countries such as China and India.

In particular, Chinese consumers account for sales of more than 100 billion euros across the globe, with Europe, Hong Kong, Macau and the U.S. as the top-four shopping destinations.

Similarly for the fashion industry, emerging countries will also have an impact on the beauty business, as they will account for 56 percent of the sector’s growth over the next five years. The estimated increase for the premium cosmetic market, which totaled 49 billion euros last year, is 3.9 percent for the period spanning from 2016 to 2020. Such growth will be led by the make-up segment and boosted by innovation and digitalization.

The EY study also analyzed merger and acquisition activities registered last year, which were central both for the luxury and cosmetic industries.

Transactions for the former business were up 53 percent in 2016, with 116 deals completed, and Italy ranked as the second country for the number of inbound deals. The average size of the deals decreased to 266 million euros compared to 616 million euros in 2015. The change was due to investors focusing more on small and medium-sized companies. Private equity funds were also key, as they were involved in 47 percent of the transactions in 2016.

Regarding the cosmetic industry, the number of deals was up 63 percent last year, totaling 65 completed acquisitions compared to the 40 transactions in 2015. The average deal size climbed to 748 million euros — without including the acquisition of Coty of 43 Procter & Gamble brands — from 633 million euros in the previous year. This was due to the fact that the top three beauty players continue to consolidate their positions, acquiring other firms in order to reach new markets and to diversify their offer with innovative products.

load comments
blog comments powered by Disqus