Strength by luxury goods shoppers in Asia - Middle East and online bring glimmers of hope to beleagured industry, says Bain & Company

Published November 2nd, 2009 - 11:16 GMT

Buoyed by a projected 12% year-over-year increase in sales in 2009 in mainland China and 20% growth of sales online, the decline for the worldwide luxury goods industry will be less than expected in 2009 and poised for 1% overall positive sales growth in 2010; this is according to findings from the 8th edition of Bain & Company’s annual ‘Luxury Goods Worldwide Market’ study.  Sales for 2009 are projected to decline by 8% to €153 billion worldwide at current exchange rates, a 20% downward revision versus the 10% year-over-year decline forecasted in April.  The authors find, however, that a full recovery will not occur until 2011 when the industry is expected to grow by 4.2% for the full year.  Results of the study were presented at Altagamma’s 2009 Osservatorio conference by Claudia D’Arpizio, a Milan-based Bain & Company partner and widely-recognized global luxury goods industry expert.

“Luxury goods markets are stabilizing,” said Ms. D’Arpizio.  “We are seeing less discounting and mark-downs and more signs of increasing consumer confidence.  Growth will be timid in 2010 but it’s showing movement in the right direction.”

Luxury sales in mature markets show continued softness.  Bain predicts that 2009 sales will be down 16% in America, 10% in Japan and 8% in Europe versus 2008 levels.  But 10% projected sales growth for luxury goods overall in Asia will partially dull the impact of those declines.

Emerging markets will also see the greatest growth in new openings of directly-operated stores (DOS).  Of the 300 estimated store openings globally in 2009, 15% will be in mainland China, 25 % elsewhere in Asia, 30% in the Middle East, and 15% in Eastern Europe and Central Asia.  The remaining 15% will largely come from so called Tier 3 cities in the U.S. (e.g. Denver, Tucson) and the rest of the world.

Aspirational luxury shoppers in Asia and other emerging markets are fueling sales in 2009,”said Marc-André Kamel, Partner in charge of the EMEA Luxury and Retail practice.  “They remain bullish on brands.”

Existing stores, conversely, have struggled, as brands absorb the full-year effect of locations opened in 2008 (~750 stores) and as department stores confront their own challenges.  The study forecasts a 2009 decline of 4% in sales at direct-operated luxury stores, compared to 11% declines in wholesale.  Online is proving to be a growth area, with a roughly 20% increase worldwide, but this channel still accounts for less than 3% of total sales.

The study finds that declines are hitting product categories, though unevenly:
•Apparel sales will fall by 11% worldwide.  In womenswear, many shoppers began the year by “shopping their closets,” deferring new purchases, and focusing on more durable items with less fashion content.  Men, too, deferred purchases for more formal wear, while shifting their purchases to more casual items.  For both men and women, accessible brands have seen the strongest impact, as consumers shifted to either discounts on higher-end brands or fast fashion alternatives.
•Jewelry, watches and other hard luxury items will be hit hardest in 2009, with a forecast decline of 18%.  These categories will feel an even deeper impact from postponed purchases than apparel, with the additional pressure of “luxury shame” depressing purchases of more ostentatious items.
•Leather, shoes and accessories will hold the line with a projected 1% decline.  These purchases represent more affordable ways for consumers to stay loyal to their favorite luxury brands.  Branded “it” bags from core leather goods brands are seeing  the strongest performance among bags, while shoes still allow women to integrate  less expensive fashion items into a mix-and-match look.
• Perfume and cosmetics are expected to fall by a more than anticipated 4% in 2009, especially as these products appeal to the broadest base of accessible luxury shoppers.
More cosmetics consumers this year expressed willingness to trade down to premium or sub-premium products.  In fragrances, more brands deferred new product launches.

Bain concluded the presentation with its prediction of 10 global luxury trends for the coming decade starting in 2010:
1. Younger consumers and new groups such as working women will become the dominant segments as baby boomers age and retire
2. Aspiration will evolve into new relationships with brands as consumers look to fill different emotional needs with their luxury purchasing
3. Retail networks and product offerings will see greater and greater customization by country and even by city—one size fits all has stopped working
4. Growth in China, South Asia and Central Asia may cause Asia to overtake Europe and the Americas as the largest global luxury market region
5. Asia’s diversity (more than 15 countries, more than 300 cities, and more than 50 million consumers) will stretch luxury brands’ marketing and supply chain capabilities
6. Market pressures in a turbulent recovery will drive a second wave of luxury consolidation
7. New luxury players will emerge as tastes and consumers change, including brands based in emerging market companies
8. The luxury shopping experience will transform as direct-owned stores, department stores and outlets look for ways to draw in the decade’s new luxury shoppers
9. Online retail is still in its infancy, but quickly becoming more than a niche
10. Retailers will treat new shoppers as “in play,” and offer competitive products to those produced by typical luxury brands

“The world of luxury will see dramatic shifts in the decade ahead, “concluded Ms Joëlle de
Montgolfier, Director – EMEA Retail, Luxury and Consumer Products Practice Bain & Company.  “Luxury has been down, but it’s not out.”

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