Luxury goods are so yesterday, but luxury experiences are in
US management consultancy firm Bain & Company’s Luxury Goods Worldwide Market Study reveals that sales of luxury items in the US and Asia (excluding Japan) grew 3% in 2016.
Spending by Chinese overseas travellers was robust. The impact of a hike in customs duties on bringing in overseas purchases seems to have hit these sales by only around 1%. Overall, services including travel and dining out enjoyed sharp growth, while sales of merchandise other than luxury cars were lacklustre.
Consumer preference shifting from luxury to casual
Global luxury industry sales grew 4% YoY to €1.08 trillion in 2016. The strongest growth was seen in luxury cars, services (travel, dining out, etc.), wine and spirits. Demand for yachts and private jets declined.
Demand is shifting from things to experiences, with the luxury goods market adjusted for changes in exchange rates contracting around 1%. At €249 billion, the market was €2billion smaller in 2016 than in 2015.
Bain’s research shows that the luxury goods market has been contracting since 2014, with consumers no longer as fixated on luxury brands. Brexit, the US presidential election and terrorism have all led to significant uncertainty and lower consumer confidence.
While luxury goods sales contracted 1% in Europe, they grew 3% in the US and Asia (excluding Japan), with the Chinese accounting for 30% of global luxury goods sales. Chinese luxury goods demand contracted only 1% YoY despite a hike in the customs duty ceiling on the import of foreign purchases from 50% to 60% in April, in a bid to bolster domestic consumption.
Consumer preference is shifting from luxury goods to casual products, particularly in the apparel market. While the market for denim and sneakers grew to €3billion, sales of luxury jewellery and watches shrank 5%.
The report notes that nominal growth was largely due to currency effects. While the euro was weak in 2015, a number of currencies weakened in 2016, with sterling down 10%, the rouble down 11%, the Brazilian real down 7% and the renminbi down 6%.
Luxury brands are likely to suffer further erosion from the impact of discount retailers going forward.