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Bain & Co.: Luxury Bouncing Back After A Few Tough Years; Jewelry Sales Growing | November 01, 2017 (0 comments)
Milan, Italy—Luxury is bouncing back after a rough patch the last few years. According to the 16th edition of Bain & Co.’s annual global luxury study, done in conjunction with Fondazione Altagamma, the Italian luxury goods manufacturers' industry foundation, luxury is on track to post a 5% growth this year.
Although both goods and services are on the upswing, experiences are driving the market forward the most.
“We started to see stronger momentum in the first half of the year, and this has continued in recent months allowing the market for personal luxury goods to really regain its lustre,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “The growth in this market is more robust, driven by increases in volumes rather than prices and a rediscovered balance between tourist purchases and re-ignited local consumption.”
In terms of goods, high-end automobile sales are up 6%, while in terms of experiences, cruise lines led the way with a 14% increase in annual revenue. Wine and food also grew 6% year on year since 2016.
Jewelry, shoes and bags ranked as the three fastest-growing categories this year, but apparel, beauty and watches still account for the bulk of the market. With the main engine for growth in the luxury market coming from Millennials and their younger Gen-Z siblings, luxury brands are targeting younger consumers, with T-shirts, sneakers, and down jackets among the standout categories.
The retail channel grew 8% in 2017. Of that, 3% came from new store openings and the remaining 5% from growth in comparable sales in existing doors. Wholesale channels grew at only 3% driven by a strong performance of specialty stores but partially offset by the disappointing performance of department stores globally.
The relentless march towards online sales continues, with luxury sales jumping 24 percent in 2017. The U.S. market makes up close to half of the $26.7 billion in online sales but growth was particularly strong in Europe and Asia. Accessories remain the top category sold online, ahead of apparel, though both beauty and jewelry and watches (what Bain calls “hard luxury”), are both on the rise. Brands are finally starting to proactively make their mark in this channel by establishing their own websites, which now account for 31% of sales.
Interestingly, the online market may be close to its peak and ready to plateau. Bain estimates that online sales for personal luxury goods will make up 25% of the market by 2025—only 1% more than current--with stores still accounting for 75% of purchases.
“The role of the store is definitely changing,” said Federica Levato, a Bain partner and co-author of the study. “The growth of the online channel is remarkable, boosted by the ‘millennial state of mind’ that has permeated the luxury industry. But this doesn’t mean stores have lost their purpose. Brands need to reinvent them to create an on-going engagement with customers that transcends channels.”
Market-wise, Chinese consumers are leading the charge. A separate report from McKinsey says China will soon have more millionaires than anywhere else in the world, though the Bain/Altagamma report says Europe has regained its post as the top region for luxury sales by value.
The Americas, however, continue to struggle. Even with a struggling environment for department stores, the region still managed to finish the year in positive territory, growing by 2% to $97.8 billion, with Canada and Mexico among the bright spots in the region.