Global luxury goods market rewinds six years amid corona pandemic

19 November 2020 7 min. read
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Bain & Company and Fondazione Altagamma have released the 2020 edition of their annual ‘Worldwide Luxury Goods Monitor’. The report provides an in-depth analysis of market developments, including the impact of Covid-19 on consumer spending, trends by luxury segment and region, and future challenges and opportunities. A roundup of the key findings.

2020 has understandably been a rude awakening for the global personal luxury goods market. In light of the Covid-19 induced downturn, consumer slashed their spending on luxury goods, throwing the market into its first contraction in more than 10 years and the largest ever on record.

According to the researchers, spending on personal luxury goods nosedived by 23 percent at current exchange rates to hit €217 billion, throwing the industry back to 2014 levels. The overall luxury market – also encompassing other luxury goods (luxury cars, private jets and yachts, etc) and experiences (fine wines, luxury hospitality, design furniture, etc) – shrunk at a similar pace and now is estimated at approximately €1 trillion.

Global personal luxury goods market

“The world has experienced a difficult year of rapid, unexpected changes and luxury has not emerged unscathed,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “The industry has suffered from a pause in global travel and ongoing lockdowns, and a change in the way consumers shop and what they value.”

Following on the second quarter, which was the worst the sector has ever experienced, there were signs of recovery in the third quarter. The most likely outcome is a -10 percent year-over-year drop in the fourth quarter, which is heavily dependent on the future evolution of Covid-19 and the additional restrictions that national governments could put in place.

Personal luxury goods market evolution per quarter 2020E

The decline in revenue is taking a disproportionate toll on profitability – Bain & Company and Altagamma [the Italian luxury goods manufacturers' industry foundation] expects operating profit to decline by 60 percent in 2020 versus the 2019 level – from an average of 21 percent margin to 12 percent margin.

Looking ahead, the authors expect uncertainty to hover over the industry for some months to come. For 2021, the forecast growth ranges from +10/12 percent to +17/19 percent depending on macroeconomic conditions, the evolution of Covid-19 and the speed of return to travel globally as well as the resilience and confidence of local customers.

Scenarios for 2021 are more varied, and recovery is expected to gather pace over the next three years, with the market returning to 2019 levels by the end of 2022/early 2023. Meanwhile, while the market is expected to recover 50 percent of the profit loss of 2020 – the level will still be below 2019 levels.

Personal luxury goods market evolution

Luxury goods market by region

Mainland China has been the only region globally to end the year on a positive note, growing by 45 percent at current exchange rates to reach €44 billion. Local consumption has roared ahead across all channels, categories, generations and price points. Japan has seen a polarised performance among brands with higher resilience of those deemed timeless and seen as long-term investments. The region shrunk by 24 percent at current exchange rates to €18 billion in 2020.

The rest of Asia also struggled, with Hong Kong and Macau among the worst performers globally. The region contracted by 35 percent at current exchange rates to reach €27 billion.

Europe however has borne the brunt of a collapse in global tourism. While local consumption remains, regional consumption fell by 36 percent at current exchange rates to €57 billion. The Americas experienced less impact and the market fell by 27 percent at current exchange rates to €62 billion.

Personal luxury goods market by consumer nationality + Personal luxury goods market by region

In Australia, a slowdown from the wildfires was amplified by the halt of tourism. The impact in the Middle East was mitigated by shorter lockdowns and repatriation of spending previously made abroad, though with different nuances among countries within the region.

Overall, the rest of the world contracted by 21 percent at current exchange rates to €9 billion.

Luxury goods market by segment

All personal luxury goods categories have seen declines in 2020. Shoes were cushioned by demand in sneakers, falling by 12 percent to €19 billion while jewelry saw sustained demand in Asia and benefited from online sales. That category remains polarised with high jewelry and iconic entry priced items leading the recovery.

Personal luxury goods market by consumer nationality + Personal luxury goods market by region

Watches and apparel both declined by 30 percent. For watches, Covid-19 amplified the already critical secular consumption pattern shifts from the category. Formal wear demand was in sharp decline and apparel players faced increasing competition from social media savvy, direct-to-consumer brands.

The generation and channel divide

Currently, GenY’s and GenZ’s account for 44 percent of total spending, but between 2019 to 2025 these two groups are expected to drive growth, lifting their combined share to over 65 percent. As a result, baby boomers, an ageing population still holding a significant portion of wealth, will account for a smaller share of the market.

From a channel perspective, the changes brought by Covid-19 have accelerated the presence of online. This year, online sales are estimated to be worth €49 billion in 2020, up from €33 billion in 2019, with the share of purchases made online nearly doubling from 12 percent to 23 percent over the past twelve months.

By 2025, online is set to become the leading channel for luxury purchases. This will not surprisingly come at the expense of bricks-and-mortar. Bain & Company and Fondazione Altagamma expect no growth in the number of stores operated directly by brands in 2020 and possible decline in store networks in 2021.

Overall luxury market size

Overall luxury market size

In 2020, the overall global luxury markets contracted by around 22 percent to €1 trillion. Luxury cruises has taken the largest hit, down 75 percent, followed by luxury hospitality, down 65 percent, and fine art, down 40 percent. With a value of just over €500 billion, luxury cars is by a distance the largest segment.

Commenting on the report’s main findings, Bain & Company partner and co-author of the study Federica Levato said: “Luxury brands have faced a year of tremendous shifts but we believe that the industry will come out of the crisis with more purpose and more dynamism than ever before.”

“By 2030, the luxury industry will be drastically transformed. Winning brands will be those that build on their existing excellence while reimagining the future with an insurgent mindset. Luxury players will need to think boldly to rewrite the rules of the game.”