Global luxury market registers weakest year since 2009
The overall luxury industry – which as tracked by Bain & Company comprises 10 segments, led by luxury cars, luxury hospitality and personal luxury goods accounting for 80 percent of the total market – surpassed €1 trillion in retail sales value in 2015.
The market delivered healthy growth of 5 percent year-over-year (at constant exchange rates), driven primarily by luxury cars (8 percent), luxury hospitality (7 percent) and fine arts (6 percent). Aided by global currency fluctuations and continued jet-setting of “borderless consumers,” the personal luxury goods market ballooned to over a quarter trillion euros.
While global tourists flocked to Europe and Japan to capitalize on a weak Euro and Yen, the Americas region, stagnant in real terms, was strongly inflated by the super dollar, thus capturing more than a third (34 percent) of the global market in 2015.
Meanwhile, Asia registered the worst historical performance (at constant exchange rates), driven by the lackluster trend of Mainland China and the sharp drop in sales in Hong Kong and Macau. These are key findings from Bain in the 14th edition of its “Luxury Goods Worldwide Market Monitor,” presented in Milan in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers industry foundation.
The personal luxury goods market – including leather accessories, fashion, hard luxury and fragrance & cosmetics – reached €253 billion in 2015. This represents 13 percent growth at current exchange rates, while real growth is significantly slowing to 1-2 percent.
“For the last several years, we’ve referenced ‘luxury’s new normal’ with a deceleration of the personal luxury goods market. Now, we are starting to feel the impact of that slow-down,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “The challenge for luxury brands in this environment is how to successfully navigate through hard-to-predict volatility.”
According to Bain’s research, Chinese consumers continue to make up the largest portion of luxury purchases (31 percent) globally, followed closely by Americans (24 percent) and Europeans (18 percent).
Chinese consumers are flocking to mature markets in droves, especially Europe, where an analysis of European tax-free shopping data, conducted in partnership with Global Blue, shows Chinese tax-free purchases increased by 64 percent, particularly among the accessible and aspirational luxury segments, thanks to a weak Euro. Americans also increased their tax-free spending in Europe by 67 percent, aimed largely at the high end of the luxury spectrum. Meanwhile, Russians cut their European spending by 37 percent, and spending among the Japanese in Europe also withered by 16 percent.
“Undoubtedly, Chinese consumers play a primary role in the growth of luxury spending worldwide,” said Federica Levato, a principal at Bain and co-author of the study. “For years, we have known that they spend far more abroad than in Mainland China, but what’s changing is that they’re spending little money in historically popular destinations, such as Hong Kong and Macau, and are instead gravitating to new locales, such as Europe, South Korea or Japan, to benefit from currency fluctuations that drive favorable price gaps.”
In terms of constant exchange rates, the U.S. market did not deliver. The “super dollar” was too expensive for many global tourists and though local consumption is growing, it was barely sufficient to offset the lost tourism revenue. Nevertheless, the U.S. is the confirmed largest luxury market in terms of global luxury value, reaching €79 billion; New York City alone outweighed all of Japan.
Japan has proven to be a consistent champion in both real and nominal terms, driven by a sound base of local consumers and the emergence of Chinese shoppers looking to capitalize on currency fluctuations.
The personal luxury goods market in Hong Kong and Macau has fallen victim to a number of government measures aimed at regulating the grey market in China, creating a 25 percent contraction in real terms.
While local spending in China continued to slightly contract, the appreciation of the local currency has boosted the country to the number three spot in terms of global luxury value, overtaking Italy and France and trailing only the U.S. and Japan.