MILAN — “It’s the first time in history when five generations are buying the same products,” said Bain & Co. partner Federica Levato, commenting on key trends and figures for the luxury goods sector in the first quarter of the year and forecasting full-year projections.
According to the updated Luxury Goods Worldwide Market Study presented on Thursday here as part of the Altagamma Worldwide Luxury Market Monitor, the luxury goods spending generated 260 billion euros in 2018, up 6 percent at constant exchange rates compared to 2017. In 2019 the market is expected to grow between 4 percent and 6 percent to 271 billion euros or 276 billion euros.
“The luxury sector has a countercyclical approach and despite geopolitical turmoils and trade wars, it’s not losing market shares,” noted Stefania Lazzaroni, general manager at Altagamma. According to the annual Altagamma Consensus based on the forecasts made by 23 analysts, the market is steady and expected to see earnings before interest, taxes, depreciation and amortization rise 6.8 percent compared to 2018.
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“Under the surface of a market seemingly consolidated, there are a lot of shifts going on,” Levato explained. Particularly she stressed a number of paradigm shifts in consumers’ habits and needs.
As reported, the study forecast Chinese consumers will contribute to at least 45 percent of the market, up from an estimated 32 percent in 2018. Chinese Gen Z consumers were dubbed as the “segment to watch…as they don’t want to homologate and are increasingly proud of their nationality,” Levato said.
As ownership is less appealing to younger customers, rental services and especially the secondhand market are gaining momentum, with the latter expected to generate 22 billion euros in 2019. In addition, Levato explained the trend is growing as customers are increasingly taking sustainability and circular fashion into account.
The trend “could favor Italian companies, which have a competitive advantage as a lot has been done, including by the Italian fashion chamber, in terms of traceability and circularity,” Levato said.
Sustaining brand equity is also key to luxury labels in order to grow organically. “The networks of customers who are not necessarily buying [luxury products] but gathering around high-end labels contribute to their value,” Levato explained, adding she believes the industry will become able to leverage this asset and monetize on it.
To this end, she pointed to a number of successful “insurgent brands, with diverse business models…as creativity is no longer a matter of just product but also business,” she noted. These labels active especially in the cosmetics and intimates sectors, were described as examples of businesses, which were able to leverage data-driven operating models; direct-to-consumer approaches and to bring creativity in the form of new products coming to the stores very quickly.
According to the Bain & Co. study, In the first quarter of 2019 the sector grew 5 percent at constant exchange rates over the same period a year earlier, reflecting the positive trend of the fourth quarter of 2018.
The study pointed to a “strong holiday season” last year, driven by Chinese domestic spending, as well as by increased tourist inflows in Europe sustained by the weakening of the euro, although with differences across countries. Particularly the study highlighted that U.K.’s Brexit and sociopolitical turmoil in France hit the performances in those countries.
The U.S. lagged behind, “hit by the financial measures, theoretically positive but in fact impactful on consumer spending for personal luxury goods, especially for the middle class” Levato explained.
In the three months ended March 31, signs of recovery in the U.S. were demonstrated by increased sales at full-price stores and online players, although outlets experienced a decline. Despite this, the study projected a 2 percent to 4 percent increase for the full year sustained by revamped tourist inflows from Mexico and Brazil, the latter country having been “off the radar for quite some time,” Levato explained.
Mainland China is poised to grow by 18 percent to 20 percent in 2019, favored by increasing domestic expenditure due to ongoing price harmonization policies. Levato noted that “especially for brands with long distributing pipelines,” prices are still 20 to 25 percent higher.
Macau and Hong Kong are both expected to decrease, the former hit by the transition from gambling to family destination and the latter by a drop in the number of Chinese tourists. On the contrary, the upcoming 2020 Olympic Games in Tokyo already impacted the tourism inflow in Japan.
For the full year, the luxury goods sector in Europe is expected to grow by 1 percent to 3 percent, while the performance in the Middle East area could be hit by the appreciation of local currencies.
By categories, according to the Altagamma Consensus for 2019, the fastest growing sector will be represented by leather goods, shoes and accessories, with handbags driving the expected 7 percent uptick. The category is followed by fragrances and cosmetics poised to grow 5 percent. Jewelry and watches are believed to post a 4 percent increase in 2019.
As reported, the Bain & Co. study forecasts total revenues of between 320 billion euros and 365 billion euros in 2025.