The luxury market continues to grow dynamically - Bain luxury study shows which new factors determine success and competitiveness
Author: House of Eden
- The luxury market is expected to grow 2023-5% in 12 despite economic uncertainty
- Luxury shopping varies by country, driven by tourism, and by category
- The key opportunities and challenges relate to the pressures of ESG regulation and the impact of generative AI
In collaboration with the Italian luxury goods association Fondazione Altagamma, Bain & Company has released a current update of its “Luxury Goods Worldwide Market Study“launched. This makes it clear that the luxury market has been in a new phase since the pandemic was overcome, in which new factors determine growth, success and competitiveness.
Can the luxury market maintain its positive growth momentum in 2023?
Despite all the geopolitical tensions and macroeconomic uncertainty, the personal luxury goods market had a record year in 2022, reaching a market value of 345 billion euros. This positive momentum is also maintained in the first quarter of 2023: the luxury market achieved growth of 9-11% compared to 2022.
The study attributes this growth to a number of factors. Among them, the gradual decline in hyperinflation, the regained confidence of local consumers in Europe, the reopening in China, as well as the positive momentum in Japan and Southeast Asia, supported by intra-regional tourism.
National perspectives on the development of the luxury market
However, a differentiated picture emerges in individual countries. The study has developed three perspectives: 1) the US is slowing down, 2) Europe is growing and 3) Asia is shifting.
USA: slowdown in consumption and rebalancing of the luxury card
Due to a possible recession, consumers in the US are cautious. The group with the highest purchasing power is relatively constant, but shifts some of its spending abroad because the price differences are increasing. At the same time, discerning luxury consumers are holding back. In this context they focus on statement pieces in all categories as well as occasion wear.
At the same time, there is a change in travel habits, especially in the high-end segment. New York and California are back on track, while vacation destinations like Hawaii and Las Vegas are recovering but still falling short of their 2019 peaks.
Europe: Synergy effects between tourism and luxury consumption
With a sustained performance in the first quarter, Europe started the year strongly. According to the study, however, the region is waiting for the moment of truth: In the summer, locals are confronted with the fact that tourism from the USA and the Middle East is slowing down. The study calculates that the peak in luxury purchases is a side effect of tourism, and its decline is therefore also slowing down the market. The coming months will test the resilience of the market.
However, one development could counteract this: In the last few months, the first Chinese tourists have returned to Europe. A solid return is even expected later in the year, which may accelerate the market.
Asia: Regional restructuring of old and new luxury centers
The market on the Chinese mainland already showed growth in the first quarter. While this is expected to continue, not all brands are expected to return to 2021 levels. In addition, the Asian market is experiencing a restructuring of its old and new luxury magnets.
Since the country's reopening, Hong Kong and Macau have seen strong growth as the main destinations for Chinese tourism. In parallel, Southeast Asia is on a growth trajectory, fueled by an influx of Russian travelers, the arrival of Chinese consumers and a strong need for jewelry and watches. In contrast, the market in South Korea is slowing down. Locals are balancing their spending and buying more abroad again. At the same time, travel retail is accelerating due to the influx from Southeast Asia.
In this landscape, however, there is an undisputed rising star: Japan. While local consumers keep their spending going, tourism is driving the growth of the market. Including the first signs of Chinese travelers.
Slow Luxury remains relevant across categories
The study shows that iconic and ultra-luxe pieces are in demand across categories. Consumers want to shop less but better and strive for something higher with a lot of value - both conceptually and materially. Watches, driven by iconic models from major brands, and jewelry, driven by luxury Uber items, are among the top-performing categories.
Source & Copyright by Bain & Company
Iconic bag models are also driving the market. According to the study, consumers increasingly perceive them as a valuable asset, almost as an investment. At the same time, shoes are only booming in Asia, while the hype surrounding collaborative sneaker models is weakening in the mainstream world. In beauty, Bain is seeing growth in fragrances, fueled by niche perfumes and the recovery in duty free, while makeup and skincare also continue to show positive trends.
In terms of distribution channels, experiential and travel retail are regaining their luster and expanding into other luxury regions. In addition, direct retail is also on a solid growth path, driven by tech-savvy consumers and omnichannel 3.0 selling.
Scenarios for the growth path of the luxury sector
According to Bain and Altagamma's analysis, the luxury market is expected to be worth between €2023 billion and €360 billion by the end of 380, compared to €345 billion in 2022. It also presents two possible scenarios for future growth:
- The positive scenario expects a solid growth path in 2023. This should be made possible by the recovery in China and ongoing - possibly stabilizing - growth in Europe and North and South America. The scenario expects the personal luxury goods market revenue growth to be between 9% and 12% compared to 2022.
- The realistic scenario shows that a slowdown in mature markets, as well as a slower recovery in China, is a major drag on overall growth. This development could possibly have a negative impact on the spending of luxury consumers. Personal luxury goods market revenue growth is expected to be between 5% and 8% compared to 2022.
In the longer term, looking towards 2023, the personal luxury goods market is expected to experience growth due to solid market fundamentals, raising its value to between EUR 530 billion and EUR 570 billion. That would be around 2,5 times the size of the 2020 luxury market.
Fast Forward: The main challenges and opportunities for the future
- decarbonization: In response to regulatory ESG pressures, luxury brands need to refocus. They must uncompromisingly decouple their business growth from emissions growth. To achieve this, decarbonization of the value chain becomes a priority.
- Generative AI: The study explains that artificial intelligence affects all stages of the luxury value chain. And also revolutionized existing business processes in all functions. This should go hand in hand with vehement efficiency and competitive advantages that will enable the market leaders of tomorrow.
- The era of "literally me": Individuality means luxury. Brands today have to offer more than just objects of desire. Rather, they must prioritize uniqueness over status, according to Federica Levato, a partner at Bain & Company and head of the company's EMEA luxury goods and fashion practice.
- Disruption and Courage: Both established giants and newcomers can gain and maintain relevance if they act disruptively. Bold marketing, hero products and visionary founders form the most important business foundations for sustainable growth.