Bain & Company’s spring luxury update highlights four trends shaping the personal luxury goods market in 2018 and beyond
The luxury market is on a tear halfway through 2018. A positive trend across all regions is set to drive this market higher by 6-8 percent (at constant exchange rates) this year to reach €276-281 billion. “China” and “millennial state of mind” remain the buzzwords in an industry that could reach €390 billion globally in sales by 2025. These are the key findings from Bain & Company, the world’s leading advisor to the global luxury goods industry, in the “Bain & Company Luxury Study 2018 Spring Update” released today in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
“2018 is off to a strong start,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “Currency fluctuations will have an impact, but we expect the healthy trend to continue across all regions and customer segments. Chinese consumers continue to stand out as a growth-driver for the industry, and are more fashion-savvy and digitally advanced than ever before, accelerating the shift of the industry to the millennial state of mind.”
Regional dynamics in the luxury market
In the Americas, the U.S. luxury market benefitted from a weaker dollar during the crucial holiday season. Tourists from Asia and Europe boosted key cities while local consumers were drawn to luxury again. Canada is growing while performance in Latin America is mixed. The region as a whole is expected to grow between 3 to 5 percent (at constant exchange rates) in 2018.
Europe was negatively impacted by a stronger euro, which had an impact on purchases by tourists. Some countries benefited from stronger consumption (Russia, France, Switzerland) while UK and Germany experienced a slowdown. Bain & Company forecasts growth of 2-4 percent (at constant exchange rates) for the region.
Mainland China is expected to account for the lion’s share of growth in 2018. We forecast this market to grow by 20-22 percent (at constant exchange rates). Brands are learning how to cater to local consumers, often young and heavily influenced by social media.
Purchases by tourists boosted spending in Japan, especially Tokyo and Osaka, though it was partially redirected towards experiences. Local influencers and social media are also key decision influences for younger local customers. Bain & Company forecasts growth of 6-8 percent (at constant exchange rates).
Across the rest of Asia, Hong Kong and Macau continue on their recovery trajectory. South Korea benefits from visitors from China, but political tensions in the region could have a crucial impact on 2018 growth trends. Bain & Company believes this region could grow by 9-11 percent (at constant exchange rates).
The rest of the world is expected to be flat or see only slight growth of 2 percent (at constant exchange rates). Dubai remains stable and supported by international tourists, while Australia is set to benefit from a larger store footprint.
Four Trends Shaping Personal Luxury Goods in 2018
Bain & Company’s research identifies four trends that will drive the luxury market in 2018 and beyond:
Chinese customers in first place: Chinese consumers will be a key nationality driving the growth of the luxury market. Buyers of luxury in China are young, increasingly fashion-savvy and well aware of the price-value equation.
Click, Click, Click: Online continues to gain ground as boundaries blur with traditional physical channels. Social media continues to influence purchases especially for younger consumers.
Casual and streetwear: Streetwear categories experienced standout growth in 2017, driven by casualization of workplace attire and younger buyers of luxury goods. This segment remains a key lever to attract new customers.
Consolidating new normal: Volume is driving market growth, not just price increases. Exchange rate fluctuations are redistributing spend among regions but not impacting global growth.
Growth expected to pick up and drive industry to new heights
Looking ahead to 2025, Bain & Company expects growth to pick up to 4-5 percent per year (at constant exchange rates) increasing the market size to €366-390 billion.
“Luxury brands should view themselves as the masters of their own destiny,” said Bain & Company partner and report co-author Federica Levato. “Customers are responding to targeted strategies, and top performing brands are already winning over the customers of tomorrow.”