First quarter update of Bain’s bellwether industry report shows extension of 2013 trends; exchange rate fluctuations changing purchasing patterns and flows
June 17, 2014 – The global market for personal luxury goods is holding its own despite lingering economic weakness in Europe, a fomenting market crisis in Russia and destabilizing exchange rate fluctuations around the world, with sales revenue growth in the first quarter of 2014 in line with 2013’s full-year figures and expected to persist through the balance of the year, this according to Bain & Company, the world’s leading advisor to the global luxury goods industry, in its “Global Luxury Goods Worldwide Market Study, Spring 2014 Update,” released recently in Milan.
Overall growth for the first quarter extends the 2013 full year trend of 4-6 percent—possibly a ‘new normal’ growth pattern according to Bain—with regional figures ranging from a projected 2014 decline of up to six percent in Russia to an increase approaching a record 11 percent in Japan.
Currency devaluations in Russia, Japan, Brazil and Indonesia are reducing or altering shopping and spending patterns globally, with resulting weaknesses offset by promising projections for Western Europe and strong projected growth in the U.S. Outside of Japan, Asia Pacific markets are strongest in Southeast Asia, followed by China and South Korea. China, though maintaining low single digit growth in real terms, continues to boast a customer base that leads the world in terms of overall luxury consumption. Additional key findings include:
- Tourism and the hunt for travel bargains are driving spending on travel retail, outlet and online shopping, making these categories top performers for 2014. Traditional channels, including single and multibrand stores and department stores, will not fare as well, with fewer new store openings, challenges to international expansion, budget cutting and shrinking store networks.
- Among products, accessories are expected to be the strongest driver of the market’s performance, followed by jewelry, watches and other “hard” luxury goods; apparel and beauty products will see more modest growth. Men’s bags and menswear are trending and have the greatest momentum.
- China’s international purchasing patterns and consumer profile are sharply evolving, with significant touristic flows into all regions of the world. Spending from China will grow the fastest in Asia Pacific, followed by North America and Western Europe.
“With luxury goods, we are seeing the emergence of a new normal: The global market is maturing, stabilizing and consolidating,” said Claudia D’Arpizio, a Bain partner in Milan and leader of the firm’s Global Luxury Goods and Fashion Practice. “It is becoming more resilient to economic crises, more responsive to a demanding and highly mobile global consumer base, and less reliant on market booms for growth. For all these reasons, luxury brands everywhere should be focusing on how to build growth organically.”
Cyrille Fabre, Bain & Company partner who leads the Retail & Consumer Products practice for the Middle East said: “In the GCC, the luxury goods market has continued grow fast, at 5-8% year-on-year. The market has been mainly driven by tourism growth (~9-10%) while the resident market has been growing but at a slower rate. GCC nationals and residents continue to buy a large share of their luxury goods abroad to experience their favourite brands in their native environment. As GCC retailers continuously enhance the customer experience in-store, they may succeed in capturing this latent demand”
Highlights by region and select countries:
- Europe: Western Europe can expect continuing strong touristic luxury shopping, with good influx of Chinese and Middle Eastern customers by contraction among Russians and Japanese. Eastern Europe and Russia in strong contraction. Projected 2014 growth of 2-4 percent.
- Russia: Domestic market suffering and contracting – deteriorating economy, declining overseas influx due to political instability. Projected 2014 loss of 4-6 percent.
- Americas: Strong U.S. fundamentals and growth among both local consumers and tourists; largest potential for European brands, leather goods, jewelry and men’s segment. Brazil slowdown. Projected 2014 growth of 4-6 percent.
- Japan: Currency devaluation repatriating domestic consumption, spurring record growth in local markets. Luxury brands raising prices with potential to curtail growth. Projected 2014 growth of 9-11 percent.
- China: Corruption crackdown reducing sales, especially gifting. Significant price differential driving purchasing overseas, making Chinese top global customers. Projected 2014 growth of 2-4 percent.
- Asia Pacific: Stagnant sales in South Korea. Singapore, Indonesia performing well; Thailand investments questioned. Projected 2014 growth of 3-5 percent.
Growth in 2014 for other regions is projected at 3-5 percent.
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