According to the recently published luxury study by Bain & Company for Fondazione Altagamma, the trade association of Italian luxury goods manufacturers, finds out that luxury cars, luxury hospitality and personal luxury goods together accounted for approximately 80% of the total luxury market.
The overall luxury industry tracked by Bain & Company comprises 10 segments and the overall industry has posted steady growth of 4%, to an estimated €1.08 trillion in retail sales value in 2016.
- Luxury cars remained the top-performing segment (growing 8%), particularly in the very high end of the market, within which sales were strong in China.
- Luxury hospitality (up 4%), luxury cruises (up 5%) and fine restaurants all benefited from growth in luxury travel.
- The beauty, fine wines and spirits, and fine food segments all grew, reflecting a redirection of luxury spending away from goods and toward personal pampering and experiences.
- The private jet market contracted, and yacht sales stagnated; unlike luxury cars, neither segment has been able to benefit from growing demand in China.
The market for personal luxury goods—the “core of the core” and the focus of this analysis—was essentially flat, at €249 billion. That represents a 1% contraction at current exchange rates and no change in market size from €251 billion in 2015 (at constant exchange rates). This is the third consecutive year of modest growth at constant exchange rates, and it represents a new normal in which luxury companies no longer benefit from a favorable market and free-spending consumers. Brexit, the US presidential election and terrorism have all led to significant uncertainty and lower consumer confidence, hindering sales of personal luxury goods. In this environment, companies no longer grow and generate profits merely by riding favorable economic tailwinds. Instead, we will see clear winners and losers. Management teams will need to implement a clear strategy to win and manage costs more closely.
The Americas and Asia (excluding Japan)—two major luxury markets—both contracted by 3% in 2016. Europe declined 1%, primarily due to a decline in tourism, and potentially would have performed worse were it not for strong sales in the UK (driven by a depreciated British pound). In China, consumers started buying again in their home market, but that was not enough to offset a dip in purchases by Chinese travelers abroad. A key factor in this shift is tighter customs controls to limit foreign shopping in an effort to fight the “grey market” of unauthorized sales and stimulate domestic consumption. As a result, China’s overall share of global luxury goods purchases declined slightly from 31% to 30%. Longer term, China remains an engine of growth for luxury goods as the country’s middle class continues to grow in size and purchasing power. The behavior of Chinese consumers epitomizes a larger global trend: the re-localization of luxury. In 2016, the growth of local luxury purchases exceeded that of tourist purchases by 5 percentage points, the first time that has happened since 2001.