2018 The Total Market Of Luxury Goods Exceeds 1 Trillion And 200 Billion Seven Trends To Shape The Future.

The luxury market continues to shine.

Bain consulting has published an analysis of the latest development and future prospects of the global luxury industry for the Italy luxury goods manufacturers association Fondazione Altagamma, the seventeenth edition of the bain luxury Research Report.

Bain's luxury industry includes both luxury and experience.

It includes 9 market segments, led by luxury cars, luxury hotels and personal luxury goods, accounting for more than 80% of the total market.

Overall, the luxury market increased by 5% in 2018, with an estimated total value of 1 trillion and 200 billion euros, and most of the market segments were excellent.

Luxury car sales continued to dominate the market, increasing by 5% to 495 billion euros at a constant exchange rate.

Luxury experience is still very attractive to consumers, such as luxury hotels (5% growth over last year), delicious food (6% growth) and luxury cruise ships (7% growth).

Personal luxury market keeps healthy growth

The personal luxury market grew by 6% (at 2% constant interest rate) to a record 260 billion euros.

Globally, the personal luxury market has experienced growth in most regions, mainly driven by stronger local consumption (at current exchange rates, a global growth of 4%).

By contrast, the purchase of tourists is generally flat.

Overall, footwear and jewellery are the fastest growing category of luxury goods, growing by 7%, followed by handbags and beauty products.

Watches sales remained flat, while clothing sales were affected, mainly because men's sales were sluggish.

Chinese consumers are still leading the demand for luxury goods.

Chinese consumers have led the positive growth trend of the global economy.

Their share of global luxury consumption continued to rise (currently 33%, up from 32% in 2017), while the share in the mainland of China rose to 9% (up from 8% in 2017).

Driven by growing demand, luxury sales in mainland China increased by 20% to 23 billion euros.

From 2015 to 2018, the contribution of local consumption to absolute growth of Chinese consumers was two times that of their overseas consumption.

Europe lagged behind in 2018 because a strong currency restricts the purchasing power of tourists.

Local consumption is generally positive (despite differences in performance), pushing retail sales up 3% to 84 billion euros.

Luxury sales grew 5% in the United States to 80 billion euros.

The positive American economy has boosted local consumers' disposable income and overall luxury expenditure.

However, the strong dollar has restrained the consumption of tourists from Asia and Latin America.

Canada and Mexico are strong markets in the region, and political uncertainty has affected Brazil's performance.

In Japan, sales of luxury goods fell slightly, rising 6% to 22 billion euros.

In other parts of Asia, sales increased by 9% to 39 billion euros.

In other parts of the world, growth was flat and sales amounted to 12 billion euros, mainly due to the stagnation of sales in the Middle East.

More and more luxury consumers are shopping on the Internet

In 2018, the retail channel increased by 4%, of which 3/4 came from the growth of store sales.

Wholesale channels have increased by only 1%, mainly due to the impact of department store performance and the slowdown in store growth, and franchised stores are facing fierce competition from online channels.

Online luxury shopping continued to accelerate in 2018, rising 22% to nearly 27 billion euros; now it accounts for 10% of all luxury goods sales.

The US market accounts for 44% of online sales, but Asia is becoming a new growth engine for online luxury goods, slightly higher than Europe.

Accessories are still the highest category of online sales, ahead of clothing.

Beauty and "hard luxury" (jewellery and watches) are on the rise.

The biggest online marketing channels for luxury goods are electronic retailers, brands' own websites and retailers' websites.

Meanwhile, driven by strong growth in Europe and online platforms, the luxury goods market has surged to 22 billion euros.

Luxury consumers are younger and more diversified.

Luxury brands can no longer deny the influence of young consumers.

In 2018, Y generation and Z generation accounted for 47% of the number of luxury consumers, accounting for 33% of luxury consumption.

However, they almost contributed to the growth of the market as a whole, compared with 85% in 2017.

In order to make full use of this advantage, luxury brands are adapting to the preferences of young consumers in product supply, communication and participation strategies and distribution channels.

The luxury industry also increasingly recognizes cultural and size preferences.

In 2018, ordinary clothing, including clothing worn by Muslim consumers, accounted for about 40% of the total number of luxury women's garments, while the "inclusive" fashion targeted at consumers with curvilinear or enlarged sizes accounted for about 20%.

By 2025, seven macro trends will shape the market.

Looking ahead, Bain predicts that the market fundamentals will still benefit the growth of the personal luxury market, which will lead to an annual growth of 3% to 5% in 2025, with a total value of 320 billion euros to 365 billion euros.

However, socio political problems, business policies and potential soft recessions may bring some setbacks in the short term.

According to Bain's analysis, the seven trends that will shape the future of luxury goods are determined.

1. Chinese consumers, especially in the mainland of China, will increase their purchasing power.

By 2025, Chinese consumers will account for 46% of the global market (33% in 2018), and half of their consumption will be completed at home (24% in 2017).

2. digitalization penetrates into every paction.

By 2025, online channels will account for 25% of market value, up from the current 10%.

Thanks to the new value chain technology, about half of the consumption of luxury goods will be digitalized, and almost all luxury consumption will be affected by online interaction.

3. network integration redefines future storage.

The reduction of physical store traffic will lead to the integration of retail networks, similar to the integration that has occurred in music, books and consumer electronics industries.

The role of the store will evolve from a simple sales point to a real contact point for consumer participation.

4. the influence of young consumers is growing.

The new generation will be the main engine for the growth of the luxury market in the coming years.

The two generation of Y and Z will account for about 55% of the market share in 2025. In the next 6 years, they will contribute 130% of the market growth to offset the decline in the sales of the older generation.

5. culture and sub culture promote consumption trend.

The growing culture and sub culture (religion, race and other) will have a greater impact.

Luxury brands will need to recognize these groups and interact with them in order to maintain relevance.

6. a market will serve "one of many markets".

By 2025, the typical competition boundaries between brands will become blurred.

As enterprises strive to meet the unique needs of individual consumers, the standard mode of growth -- brand is either an expert in a particular field, or diversifying in a wider range of products and services -- will be applied to the extreme.

7. agility becomes a key factor.

The profit margin of EBIT (pre tax profit) rose from 19% in 2017 to 20% in 2018, which confirms the recent trend of profit increase.

However, digital subversion will continue to affect the profits and losses of brands, and profitability should be stabilized.

In order to maintain profitability, brands need to become more flexible.

To cope with these trends, brands should focus on three aspects:

Actively develop specific strategies to address market trends.

Design a unique winning plan according to the needs of consumers.

Winning the support of young consumers will become the key engine for future market growth.

Supporting all these strategies is new technology. By the year 2025, new technologies will play a key role in all aspects of the value chain of luxury goods.

1. The trend of luxury consumption in 2018

Bain's global luxury market includes 9 segments, including luxury cars, personal luxury goods, luxury hotels, wine and spirits, food, fine arts, high-end furniture and household goods, private aircraft, yachts and luxury cruises.

Overall, the luxury market increased by 5% in 2018 to about 1 trillion and 200 billion euros, with most of the market segments showing real growth.

Luxury cars, luxury hotels and personal luxury goods account for more than 80% of the total market.

Luxury car sales continued to dominate the market, rising 5% to 495 billion euros (compared with 2017, a slight decline in growth rate).

In the luxury car market, ambitious market segments outperform other markets.

The luxury hotel industry grew by 5% in real terms, achieving a positive growth.

Luxury cruise sales increased by 7%, the fastest growing in all luxury goods sectors.

In 2018, the category of adventure was especially prosperous.

Sales of high-end food increased by 6% over last year.

What is particularly important is the trend of "ethical nutrition", which is reflected in the desire of consumers for authenticity, quality, freshness and pparency of product sources.

High quality wine and spirits increased by an average of 4%. Wine (low number of digits) and polarization of spirits were polarized. Due to increased demand from high-end clubs and growing interest in refined spirits, strong spirits grew strongly.

Despite rising interest in Chinese buyers, yacht sales are flat.

The private aircraft market continued to shrink and suffered from the secondhand market.

In 2018, personal luxury goods outperformed the overall market, climbing 6% to a record 260 billion euros.

Two, regional highlights

In the world, the personal luxury market has experienced growth in most regions.

Europe is still the region with the highest sales volume, followed by the Americas, Asia (including China), Japan and the rest of the world.

Chinese consumers have led this positive growth trend, accounting for 33% of global luxury consumption (up from 32% in 2017).

From 2015 to 2018, the purchasing power of mainland Chinese consumers contributed to absolute growth two times that of overseas consumption.

Europe experienced moderate sales growth in 2018.

Local consumption is generally positive, with retail sales boosted by 3% (at current exchange rate 1%) to 84 billion euros.

But the slowdown in tourism spending has had a major impact on the European market as a whole.

Data from Global blue, which tracks tax-free shopping, shows that tax exemptions in most major markets, including Germany, the United Kingdom, Spain and Italy, have shrunk dramatically, as currency strength has restrained tourists from shopping.

France is still a bright spot, and the duty-free paction has increased by 2%.

Sales of luxury goods in the Americas increased by 5% to 80 billion euros.

The positive American economy has boosted local consumers' disposable income and overall luxury expenditure.

However, the strong dollar has restrained the consumption of tourists from Asia and Latin America.

Canada and Mexico are strong markets in the region, and political uncertainty has affected Brazil's performance.

Compared with 2017, luxury purchases in Japan slowed down, but still increased by 6% to 22 billion euros (at current exchange rate 3%).

Japanese tourists are spending more. They are using affordable flights to Tokyo, Kyoto and Osaka.

Sales in other parts of Asia increased by 9% (at current exchange rate of 11%) to 39 billion euros, thanks to strong local consumption in Korea and rapid growth in Singapore, Thailand, Vietnam and Philippines.

In other parts of the world, growth remained flat at 12 billion euros.

The disposable income of the Middle East consumers is limited because of falling oil prices and recent government spending restrictions.

In addition, the turbulent geopolitical situation in the region has reduced the number of tourists.

Three, distribution trends

Wholesale is still the largest channel for luxury goods, accounting for 62% of all sales.

However, as more and more companies seek to control the experience of delivering to customers, retail channels continue to grow steadily - an increase of 4% in 2018.

1% of them came from new stores, and the remaining 3% came from the same store sales growth.

Wholesale stores grew by only 1%, due to fierce competition from online channels.

Meanwhile, department stores have found differences between struggling market segments and resurgent high-end segments.

Discount stores and airport stores continued to grow strongly, all up 7%.

The Internet is still the fastest growing channel, and global luxury goods sales increase by 22% and penetration rate reaches 10%.

The Americas account for 44% of the world's online luxury goods sales, amounting to 27 billion euros, but growth in Europe and Asia is particularly strong.

Accessories are still the highest category of online sales, ahead of clothing, while sales of beauty and hard luxury items (jewelry and watches) are rising.

The biggest online channels for luxury sales are electronic retailers (39%), brand self owned websites (31%) and retailers' websites (30%).

The secondary market for luxury goods increased to 22 billion euros in 2018, thanks to strong growth in Europe, more than half of the European market, and the growth of highly specialized online platforms.

Watches and jewellery are the main categories of the secondary market, accounting for 80% of all purchases.

Four, the performance of personal consumption categories and the changes of consumers.

Accessories are still the largest and fastest growing category, accounting for 1/3 of the personal luxury market, up 4% in 2018.

Clothing, beauty and handbags continue to account for most of the world's luxury consumption, reaching 60 billion euros, 56 billion euros and 51 billion euros respectively.

Shoes and jewellery are the fastest growing category, growing by 7%, followed by handbags and beauty products.

Watches sales remained flat, while clothing sales were affected, mainly because men's sales were sluggish.

In 2018, Y generation and Z generation accounted for 47% of luxury consumers, accounting for 33% of the total consumption of luxury goods.

However, they almost contributed to the growth of the market as a whole, compared with 85% in 2017.

In response, the luxury market is adapting to the preferences of young consumers, developing and innovating in product supply, communication and participation strategies and distribution channels.

Although the Z generation has a smaller share of the market (2% in 2018), it has shown a totally different preference from previous generations.

For example, Z generation consumers prefer "individualism" (looking for products that convey their unique personality); they prefer to shop in physical stores (but expect digital enhanced experience); there are more driving signs, though they seldom show brand loyalty.

The luxury industry also increasingly recognizes cultural and size preferences.

In 2018, clothing, including clothing designed for Muslim consumers and other less revealing designs, accounted for about 40% of the luxury women's garments.

The "inclusive" fashion, which targets consumers with curvilinear or enlarged sizes, accounts for about 20% of the clothing market of luxury women, and the number of single code clothing, large size clothing and loose and comfortable clothing produced by the brand is increasing.

Five, future prospects

By 2025, Bain expects that the growth rate will continue to grow at a rate of 3% to 5% per year, and the personal luxury market will reach 320 billion euros -3650 billion euros.

By 2025, Chinese consumers will account for 46% of the global market (33% in 2018), half of which will be completed at home (24% in 2017).

The younger generation will be the main engine of growth in the next few years.

Y generation and Z generation will account for about 55% of the luxury market in 2025. From now to 2025, they will contribute 130% of the market growth to offset the decline in the consumption of elderly consumers.

By 2025, online channels will account for 25% of market value, up from the current 10%.

New technologies such as virtual reality and mobile payment will bring about half of the luxury consumption digitalization, and almost all luxury consumption will be affected by online interaction.

The profit margin of EBIT rose from 19% in 2017 to 20% in 2018, which confirms the trend of the rising profit margin in the near future.

However, the digital subversion will continue to affect the profits and losses of the brand, and the profitability of the future should be stabilized.

In order to maintain profitability, brands need to become more flexible.

Author: Olivia Chan