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Renaissance in Uncertainty: Luxury Builds on Its Rebound

CEO Tinh Phung
The global luxury goods market has experienced a remarkable resurgence, defying uncertain market conditions. Even in the face of economic turbulence, the industry is set to witness further expansion in the coming years, according to...

The global luxury goods market has experienced a remarkable resurgence, defying uncertain market conditions. Even in the face of economic turbulence, the industry is set to witness further expansion in the coming years, according to the 21st edition of the Bain & Company-Altagamma Luxury Study. This collaboration between Bain & Company and Fondazione Altagamma, the trade association of Italian luxury goods manufacturers, reveals key findings that highlight the industry's resilience and potential for growth.

Luxury Industry's Resilience

After a severe contraction in 2020 due to the Covid-19 pandemic, the luxury market rebounded to €1.15 trillion in 2021 and surpassed expectations by growing 19%-21% in 2022. This growth was driven by increased spending on personal luxury goods and a moderate rise in experience-based luxury items. However, the recovery of the experience-based luxury sector is dependent on the resumption of international tourism and business travel.

The personal luxury goods segment, which is the focus of this analysis, witnessed impressive growth in 2022. Despite global macroeconomic challenges and specific difficulties in China, the sector performed strongly throughout the year, resulting in an estimated €353 billion in retail sales value. Around 95% of luxury brands experienced positive growth in 2022, showcasing the industry's resilience and long-term vision.

Luxury in 2023: Resilient to Recession

Despite the likelihood of a global recession in 2023, the personal luxury goods market is expected to continue expanding. The industry's ability to cope with economic turbulence has improved significantly, thanks to its larger consumer base and a concentration on top customers who are less sensitive to downturns. The emphasis on customer centricity, along with the development of a multi-touchpoint ecosystem, has further bolstered the industry's resilience.

In 2023, two scenarios could unfold for the personal luxury goods market. In the base case, sales growth may range from 3% to 5%, while a more positive case could lead to growth of 6% to 8%, depending on the strength of economic recovery in China and the resilience of the US and European markets.

Emerging Markets and New Opportunities

The US luxury market demonstrated robust performance in 2022, with Europe also recovering beyond pre-pandemic levels. China faced challenges due to Covid-related lockdowns but is expected to recover by the second half of 2023. Meanwhile, Southeast Asia and South Korea have emerged as potential growth markets, excelling in both current growth and future potential.

While China remains a crucial luxury market, other regions, such as India, Southeast Asia, and Africa, show significant potential for growth. However, their luxury shopping infrastructure must evolve rapidly to fully capitalize on this potential. India, in particular, stands out as a rising star, with its luxury market projected to expand to 3.5 times its current size by 2030.

Reshaping the Luxury Landscape

The retail sector has regained its prominence, outperforming wholesale and achieving market share parity. The online channel's market share is also stabilizing, and the coming years will witness a fusion of monobrand outlets and e-commerce. This trend will drive luxury brands to adopt an "omnichannel 3.0" approach, leveraging new technologies to enhance customer experiences.

All personal luxury goods categories have now recovered to or surpassed 2019 levels, with hard luxury, leather, and apparel leading the resurgence. Price increases, driven by deliberate elevation strategies, have contributed to the growth of the leather category, accounting for about 60% of the sector's growth between 2019 and 2022.

Expansion of Consumer Base and Future Trends

The luxury market's consumer base is expected to expand from 400 million people in 2022 to 500 million by 2030. The share of top customers has also increased, accounting for 40% of market value in 2022. These discerning consumers demand unique products and experiences, prompting luxury brands to prioritize strategies targeting their very important clients (VICs).

Generational trends and technological advancements will play a significant role in reshaping the luxury market through 2030. Generations Y, Z, and Alpha fueled the industry's growth in 2022, and their purchasing power is expected to increase three times faster than other generations' by 2030. Additionally, new activities empowered by technology, such as the metaverse, brand-related media content, and virtual experiences, are projected to drive an additional €60 billion to €120 billion in sales by 2030.

Luxury Growth Image: Luxury growth

Regional Highlights

In 2022, the luxury sales ranking by region underwent significant changes. The Americas regained the top position for personal luxury goods sales, followed by Asia (excluding Japan) and Europe. The Americas witnessed impressive growth, with the United States experiencing a gradual return to growth in traditional luxury hubs and a sustained increase in sales from suburban areas. Latin America, especially Mexico and Brazil, also experienced solid growth.

Asia, excluding Japan and China, registered a remarkable 43% surge in luxury sales, driven by the outstanding performance of Southeast Asian countries and South Korea. Mainland China faced challenges due to prolonged Covid-related lockdowns, resulting in lackluster performance across all categories and channels. However, a rebound is expected in the second half of 2023. Europe performed well, with Italy and France leading the growth trajectory, followed by Turkey, the UK, and Spain. The Russian market remained inactive due to war-related suspensions.

Japan experienced an 18% growth, finally reaching its pre-pandemic level. Local consumption played a crucial role, along with the return of tourists after the reopening of the country.

India and emerging markets in Southeast Asia and Africa hold immense potential for the luxury industry but require rapid development of luxury shopping infrastructure and regulatory frameworks to fully leverage growth opportunities.

Regional Highlights Image: Regional highlights

Outlook for the Future

Luxury brands have displayed remarkable strength, resilience, and innovation throughout three years of turbulence and uncertainty. While profit levels slightly eroded in 2022 due to increased investment in future growth, the industry remains poised for healthy growth in the medium term. Solid market fundamentals are projected to drive annual growth rates between 5% and 7% until 2030, resulting in an estimated market value of personal luxury goods between €540 billion and €580 billion by the end of the decade.

The future of the luxury market will be shaped by four key growth engines. Chinese consumers are expected to regain their dominance in the luxury sector, representing 38%-40% of global purchases. Mainland China is projected to surpass the Americas and Europe, becoming the largest luxury market worldwide, constituting 25%-27% of global purchases. Younger generations, such as Gen Y, Z, and Alpha, will play a significant role, accounting for 80% of global luxury purchases. Moreover, online channels are expected to become the leading platform for luxury sales, followed closely by monobrand stores.

By 2030, luxury is likely to extend beyond its traditional business model, embracing new revenue streams driven by technology. Activities such as the metaverse, virtual events, media content, secondhand sales, and innovative luxury experiences will contribute an additional €60 billion to €120 billion in sales, diversifying the industry's landscape.

The Bain Luxury Goods Worldwide Market Study, conducted annually since 2000, analyzes the market and financial performance of over 280 leading luxury goods companies and brands. The study's insights are based on a combination of data, macroeconomic analysis, industry reports, and expert interviews. These findings provide valuable guidance for the luxury industry's stakeholders, highlighting opportunities and trends for future growth.

Note: This article is based on the original content from Bain & Company-Altagamma Luxury Study.