After its worst dip in history, the personal luxury goods market has experienced a v-shaped rebound, reaching €288 billion (US$304 billion) in value in 2021. The market benefited from an exuberant 2021 holiday shopping season across regions, with a 7% increase over the same period in 2019.
Additionally, China continued to see double-digit growth last year and Western markets experience sustained local demand—the United States, in particular, maintained momentum, even after federal stimulus cheques ended.
These are the key findings from Bain & Company in its Luxury 2022 Spring Update – “Rerouting the Future.” The study was released June 21 in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
“Despite significant macro-economic challenges, including hyperinflation, slowing GDP growth and the Russia-Ukraine conflict, the personal luxury goods market proved resilient once again,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study.
“Luxury goods brands started this year showing especially strong growth while also playing a leading role in the world’s ongoing sustainable and digital transformation.”
2022 started strong, with the US and Europe leading growth
The personal luxury goods market experienced remarkable performance in the first quarter of 2022, growing by 17-19%, at current exchange rates (13-15% at constant exchange rates), over the same period in 2021 for several reasons:
- Europe is accelerating its recovery, despite the war’s shadow. The region is on the path to recover to 2019 levels one year before expectations, thanks to booming local demand driven by a fierce “back to normal” attitude and a rebound in intraregional tourism. The impact of the Russia-Ukraine conflict has so far been restricted to local markets, showing limited consequences on global luxury customer sentiment and spending.
- The US is tapping into the power of diversity and inclusion. The US luxury market is experiencing unprecedented growth as luxury brands are unleashing the real power of diversity and inclusion, discovering the true potential of the entire American customer base.
- China spending is crunched under strict Covid restrictions. China showed strong momentum during the Chinese New Year and through March 2022. However, the country’s spending has been challenged by its strict Covid restrictions, which proved much more significant than its 2020 policies. Yet, local consumer appetite remains strong and will potentially lead the country to recover between in late 2022 to early 2023.
- South Korea undergoes a profound transformation. The country has increased its size and cultural relevance, replacing touristic spending with local demand. Winning brands successfully reinvented their business model in the country to cater growing local demand and influence.
Opportunities for future growth
- Luxury brands in the virtual world. In addition to growth delivered by traditional luxury products, digital assets and the virtual world—the metaverse, social media and gaming—will play an increasingly relevant role in luxury brands’ value propositions. By the end of 2030, digital assets and the metaverse will comprise 5-10% of the luxury market. Luxury brands have the opportunity to play a key role in shaping the virtual worlds on the rise, acting as creators and builders.
- The growing relevance of direct-to-consumer channels. Tech disruption favors luxury brands that adopt an uber-channel approach, building a new intimacy with customers by leveraging new and evolved touchpoints.
- Responding to the call of sustainability. Lack of clear sustainability standards, coupled with higher consumers’ demand of sustainable products and evolving sustainability topics, represent a call-to-action for luxury brands: out-innovate on sustainability to build a competitive advantage.
- A new working future is emerging, especially for younger generations. Luxury brands will need to expand their people value propositions, embrace diversity, become talents makers as opposed to talent takers and smartly leverage automation.
The market could reach €360-380 billion by 2025
Despite the challenges and disruptions that happened in early 2022, the mid-term direction of the luxury market remains unchanged. Bain & Company estimates market growth to reach €360-380 billion by 2025. highlighting two possible trajectories for 2022:
- An optimistic scenario, where the first half of 2022 growth path continues throughout the entire year. In this scenario, the market would reach around €320-330 billion by the end of 2022, growing 10-15% over 2021.
- A slower pace scenario, which projects a potentially reduced growth pace due to a slower recovery of mainland China and challenged spending in mature markets caused by inflationary pressure and macroeconomic slowdown. According to this scenario, the market will reach €305-320 billion by the end of 2022, growing 5-10% over 2021.
“In the last few months, luxury brands have been forced to reroute their futures” said Federica Levato, a Bain & Company partner and co-author of the report.
“Winners will rapidly embrace the changes, ensuring they fully understand the implications of new geopolitical dynamics and cultural trends for all of their stakeholders: consumers, investors, employees and society at large. Those that come out ahead will take advantage of the opportunities presented by the virtual world, the sustainability transformation and preferences of younger generations.”
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