NEW YORK — The once impervious luxury goods sector is facing a worldwide setback in 2009 and a period of consolidation before a recovery expected in 2011, according to new findings by Bain & Co.
At a roundtable with the media Tuesday, Claudia D’Arpizio, a Bain & Co. luxury specialist, forecast consumer spending for premium products this year will decline by an average of 10 percent worldwide, to roughly 154 billion euros, or $216 billion.
Such a falloff, after a 15-year run of growth, would compare with luxury purchasing totaling 170 billion euros, or $238 billion at current exchange, in 2008.
“We don’t expect a strong recovery until 2011,” said D’Arpizio, a partner in Bain’s Milan office. “Based on GDP estimates and other economic indicators, we see growth of about 4 percent in 2011 and 7 to 8 percent in 2012. We believe we are currently at the worst point of the global economy.”
Forestalling a potential recovery on the high end, she said, is weaker consumption in key markets that fueled the sector’s growth — including Eastern Europe, Russia and Japan — plus pullbacks in spending by aspirational customers in the U.S., among other places.
“The core luxury customer, the aspirational customer, currently is buying fewer items, is focusing on fewer brands and is trading down,” D’Arpizio said.
Women’s luxury apparel is expected to feel the sharpest spending cutbacks worldwide this year, with a projected decline of 15 percent; men’s and women’s watches and fine jewelry are projected to pull 12 percent less.
Even if business picks up in 2011, top-end brands will likely need to start scouting for consumers to replace the eldest of the 80 million Baby Boomers in the U.S., now in their early 60s and late 50s — people who may soon begin to buy fewer premium products as they reach retirement or work fewer hours, and develop new priorities.
“In five years time, luxury players will need to add customers from younger generations,” D’Arpizio said. “The most significant strategic questions is ‘How are the key customers changing?’”
Next year or in 2011, D’Arpizio said, “Expect to see a new wave of luxury goods consolidation, and merger and acquisition activity. If you are bigger, you have more muscles — not just financially but managerially — to overcome economic challenges.”
D’Arpizio noted such dealmaking and consolidation is not likely to begin just yet, adding: “It is very difficult for smaller companies to sell at [depressed] prices and undervalue their companies.”