MILAN — Tourist spending and retail remain the main growth engines behind the luxury business, but online is the fastest-growing channel, showing a 28 percent jump in 2014, according to the most recent study by Bain & Co. and Fondazione Altagamma, the Italian luxury goods association, presented here Tuesday.
This story first appeared in the October 15, 2014 issue of WWD. Subscribe Today.
Chinese remained the top consumer nationality when it comes to luxury spending. However, the country showed a negative performance for the first time — down 2 percent — impacted by the government clampdown on luxury spending and the evolution of shopping patterns.
The Americas was the best performing region, up 3 percent, followed by Europe and Japan, each logging in a 2 percent growth. The Asia Pacific area is expected to post 1 percent growth, impacted by extraordinary circumstances and a negative currency effect.
Accessories retain the top position, representing 29 percent of the market and growing at a rate of 4 percent, fueled by the brisk growth of the footwear category. Hard luxury is slowing down, hit by a deceleration in Asia, especially of watches.
In the 2014-to-2017 period, compound annual growth rate at constant exchange is expected at between 4 to 6 percent, reaching between 250 and 265 billion euros, or $317 billion and $336 billion. Claudia D’Arpizio, partner at Bain in Milan, talked about “a revolution” in the industry and the need to “have a point of view to compete in the next 10 years.”
Armando Branchini, vice chairman of Fondazione Altagamma, presented the association’s Consensus study, which expects a 5 percent growth in the haute de gamme sector in 2015, driven by leather goods, shoes and accessories, forecast to gain 6 percent. Apparel and beauty are expected to increase 4 percent each.
Andrea Illy, chairman of Altagamma, said, “We must wait for another 10 years before a new economic boom, which will most likely be boosted by some new technology.”
Returning to the Bain and Altagamma study, in 2014, the beauty category is expected to grow 2 percent; hard luxury 1 percent; apparel 2 percent, and accessories 4 percent. D’Arpizio defined the ready-to-wear growth trend “relatively sluggish,” with men’s wear gaining 1, boosted by outerwear, and casual wear “maintaining momentum.”
Women’s wear is also up 2 percent showing an “outperformance” of outerwear. Leather goods are up 3 percent to 37 billion euros, or $47 billion, with mid-size brands outpacing mega-brands, and heritage brands repositioning upward by almost completely abandoning the logo and canvas offer.
Shoes are up 5 percent to 14 billion euros, or $17.7 billion, outperforming leather goods in growth terms for the first time since 2007. D’Arpizio pointed to an “unprecedented fashion sneakers phenomenon,” and the made-to-measure trend growing.
There is a slight slowdown in the opening of directly operated stores, especially in emerging markets, and the wholesale channel is showing the first signs of recovery.
The study shows a decline in Chinese local spending while there is a growing outbound flow of “wannabe consumers” with lower spending power, and wealthy opinionated consumers opting for more experiential luxury when traveling abroad. A stricter custom control at arrival has been reducing multiple purchases abroad.
The Western Europeans are increasingly looking for value for money and “getting disillusioned about an industry that is cutting them off with continuous price increase,” the study said.
Europe is the region most dependent on tourist spending, but foreign shoppers are also increasingly relevant in the Americas.
Russia is expected to show an 18 percent decrease in euro terms following a decelerating performance in 2013. “The Crimea crisis is only on top of a structural weakness of the market, a difficult access to credit, and business that is not directly handled by brands locally,” noted D’Arpizio. The contraction was further penalized by a currency devaluation, and low consumer confidence.
Japan is the best-performing market in real terms, with local consumption having a positive momentum. Mainland China is contracting for the first time, showing a 2 percent decrease as control on luxury spending has been extended beyond public officials, the opening of stores is slowing down versus a real estate oversupply; Hong Kong is decelerating significantly hurt by demonstrations; Macau and South Korea are strong, while Taiwan isn’t taking off. “Indonesia is confirmed as a top priority in terms of local potential despite the infrastructural and corruption challenges,” said D’Arpizio.
The worldwide luxury market comprising all categories is expected to reach 865 billion euros, or $1 trillion, in 2014, up 7 percent from the previous year.