It used to be that luxury goods were immune to the ups and downs that other retail sectors faced.
Not this year.
In something that could only happen in 2020, mass market retailers are outshining the luxury market.
A record breaking 23% year-on-year plunge in sales – the first time the overall market contracted since 2009 – has taken the shine off luxury brands.
Even growth in e-commerce, 23% of sales this year up from 12% in 2019, couldn’t compensate for consumers who typically purchase luxury goods when traveling abroad. Lockdowns, work-from-home and economic uncertainty has helped either.
“We have all experienced a difficult year of rapid, unexpected changes and luxury has not emerged unscathed,” said Claudia D’Arpizio, a Bain & Company partner in a new report on the sector.
The outlook for 2021 is more ‘hopeful’ than full on optimistic. Bain is forecasting growth of anywhere from 10% to 19% depending on a wide range of economic factors.
However, like most sectors, a lot hinges on getting the pandemic under control and restarting the travel industry. Before the pandemic, international travelers, especially Chinese tourists, had largely fueled luxury markets in Europe and the United States.
China will become the world’s biggest luxury goods market by 2025, with Chinese consumers set to account for nearly half of the global spending in the sector in the same period, according to Bain.
The development of domestic retail within China will be critical for luxury goods brands. The good news is that starting this summer, China began creating duty-free shopping opportunities for domestic travelers.
“In China, the number of people who buy luxury goods is probably growing stronger than ever before, as not traveling abroad prevents them from buying overseas. There is no fatigue of luxury spending in the China market,” according to Daniel Zipser, a Shenzhen-based senior partner of consulting firm McKinsey& Co.
In addition, China will be the only region in the world to see a growth in luxury goods sales this year, according to the Bain report. Total sales of luxury goods are set to rise by 45 percent on a yearly basis to $52 billion this year.
The luxury goods market worldwide is likely to rebound to 2019 levels by the end of 2022 or early 2023, boosted by strong sales growth in China and via online shopping channels.
Luxury Transformation
- Online is set to become the leading channel for luxury purchases by 2025 with fewer physical stores.
- No growth in the number of stores operated directly by brands in 2020 and possible decline in store networks in 2021.
- Greater focus on China and other emerging markets.
- Brands will need to maximize the customer experience.
“By 2030, this industry will be drastically transformed. We will not talk about the luxury industry anymore, but of the market for insurgent cultural and creative excellence. In this new enlarged space, the winning brands will be those that build on their existing excellence while reimagining the future with an insurgent mindset. Luxury players will need to think boldly to rewrite the rules of the game,” according to Bain.
