2018 to be a stellar year for luxury says latest Bain/Altagamma report
Luxury should continue to prosper in 2018 with a new forecast suggesting growth in high-single-digits as a rebounding China keeps businesses at the highest end of the market much more buoyant than many fashion companies further down the price scale.
Who says so? That's the takeaway from the Bain & Company Luxury Study 2018 Spring Update, which it unveiled on Thursday in collaboration with Italy’s Fondazione Altagamma luxury goods body.
The tone was upbeat throughout with Bain saying that “the luxury market is on a tear halfway through 2018” as positive trends in all regions are set to result in a currency-neutral uplift of between 6% and 8%. That would mean sales this year reaching anything between €276 billion and €281 billion.
“2018 is off to a strong start,” said Claudia D'Arpizio, a Bain & Company partner and lead author of the study. "Currency fluctuations will have an impact, but we expect the healthy trend to continue across all regions and customer segments.”
Given the tough overall retail conditions in many markets, that's an impressive achievement. So who do we have to thank for the growth?
The report said that Chinese consumers, especially from the millennial demographic, are key. "Chinese consumers continue to stand out as a growth driver for the industry, and are more fashion-savvy and digitally advanced than ever before, accelerating the shift of the industry to the millennial state of mind,” D’Arpizio added.
Mainland China is predicted to account for the lion's share of growth in 2018 as Bain is expecting the local market to grow between 20% and 22% (all the percentages are currency-neutral). But it's not only the consumer who will power that growth. Brands are also becoming more effective as they’re “learning how to cater to local consumers, often young and heavily influenced by social media,” the report said.
While other regions won't show the same kind of acceleration, they're almost all on an upward curve. In the Americas, the US luxury market benefitted from a weaker dollar during the crucial Holiday season. Tourists from Asia and Europe boosted key cities “while local consumers were drawn to luxury again.” And Canada is growing too, although performance in Latin America is mixed. That means the Americas region as a whole is expected to grow between 3% and 5% in 2018.
Europe won’t be quite as buoyant. It has been hurt by a stronger euro, which has dented purchases by tourists, but some countries have seen stronger consumption (Russia, France, Switzerland). However, the UK and Germany have both experienced a slowdown, although in the case of the UK that's not a surprise, given the surge seen in 2016 after the Brexit vote and how much the pound has strengthened in recent months. Bain is expecting growth of between 2% and 4% for Europe.
Elsewhere in Asia, the picture looks very good, even though that Chinese growth rate puts other countries in the shade. Purchases by tourists have boosted spending in Japan, especially Tokyo and Osaka, and Bain is forecasting growth of between 6% and 8%.
Across the rest of Asia, Hong Kong and Macau “continue on their recovery trajectory,” while South Korea is feeling the benefits of visitors from China, but political tensions in the region could have a crucial impact on 2018 growth trends. The end result? A forecast growth rate of between 9% and 11%.
Meanwhile the rest of the world is expected to be flat or see only slight growth of 2%. Dubai remains stable and supported by international tourists, while Australia is set to benefit from a larger store footprint.
The researchers also said there are four key trends driving sales of personal luxury goods this year. They include the existence of a growing number of young, increasingly fashion-savvy Chinese consumers who are well aware of the price-value equation.
And it also called out the importance of digital “as boundaries blur with traditional physical channels” and as social media continues to influence purchases, especially for younger consumers.
Also key will be the fact that streetwear categories experienced “standout growth in 2017, driven by casualisation of workplace attire and younger buyers of luxury goods.” This segment remains an important lever to attract new customers, we’re told.
And the final trend is that people are buying more luxury goods. That means volume is driving market growth, rather than just price increases. This is important because while exchange rate fluctuations are redistributing spend across different regions, they’re not hurting overall global growth. The fact is that consumers love luxury and just want o buy more product than ever.
And that attitude means that Bain feels confident in predicting growth of between 4% and 5% a year overall in the years ahead, driving the market size to between €366 billion and and €390 billion by 2025.
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