Premium products driving growth in $420 billion luxury fashion market

The global market for fashion luxury products will see strong growth in the coming years, according to a study by EY-Parthenon. Valued at around $420 billion today, the industry for high-end shoes, watches, bags and more is set to reach a size of nearly $500 billion by 2020, with the premium segment overtaking the top luxury segment as the main driver of growth.

Gucci handbags, Rolex watches, Versace gowns, Jimmy Choo pumps: signifiers of money and status, the luxuries of the wealthy and super-wealthy. While high-end, “traditional” luxury fashion products continue to account for the bulk of the market, a new report from EY-Parthenon – the strategy consulting arm of Big Four firm EY – predicts that the lower end of the market – “premium” brands like Diesel, Guess, Tommy Hilfiger, and Calvin Klein – will be the new engine for growth.

The researchers relate that for the past decade, the highest-end traditional brands have been driving market growth, with an average annual growth rate of 12% from 2009-2012. However, traditional luxury’s growth rate plummeted to 2.8% from 2012-2016. In contrast, the premium segment – worth over €100 billion – is expected to continue to outperform the growth rate of the traditional segment from 2016-2020 (6% versus 3% to 4% annual growth rate). As such, EY-Parthenon labels the premium segment as the emergent driver of growth within the global luxury fashion industry.

Product categories

Accessories and shoes appear to be the dynamic driving force of the luxury fashion market, in both the luxury and premium categories, with expected growth rates of 11% and 6% for luxury shoes and accessories between 2016 and 2020, and 7% and 6% for premium shoes and accessories. The clothing category is also expected to grow at a healthy rate for both segments.

However, the authors identify the watches and jewelry category – market estimated to be worth €140 billion – as one where high-end luxury can expect to lose ground. Indeed, the report predicts a -1% growth rate for luxury watches and jewelry – the only negative estimate across the luxury fashion landscape. EY-Parthenon judges the top end luxury segment to not be as dynamic as in the past, which leaves an opportunity for premium products to gain ground. Premium watches and jewelry are expected to have a growth rate of 5% between 2016 and 2020, 6% higher than the stagnating luxury segment.

Regional dynamics

The US and Europe remain the largest markets for luxury fashion, with €131 and €109 billion in sales respectively. The researchers expect the US premium and lower-end luxury segment to have an average growth rate of 6% between 2016 and 2020, and a more modest 3% in traditional luxury. Europe’s premium market is expected to lag a bit in growth rate compared to the US: 3% for premium and 2% for luxury in 2020.

China is the fastest growing market for luxury fashion in the world. And while it only accounts for 10% of the luxury fashion market, China is the largest consumer of luxury goods generally, at 30%. EY-Parthenon describes Chinese luxury consumers as “mix and match” shoppers, mixing high-end fashion with lower-end premium products – a Prada bag with Lacoste sneakers – for example. This trend is driving the premium segment growth in China, with a 7% per annum expected growth rate in years between 2016 and 2020.

Globally, EY-Parthenon predicts a slowdown in the traditionally luxury segment, with the growth rate decreasing to 2% by 2020. In contrast, premium and more standard luxury is expected to continue growing unabated, increasing from 7% growth in 2016 to 8% in 2020.

High-end slowdown, low-end surge

The authors identify two main reasons why the top end of the market – products for the richest – is losing ground to the more premium segment: the popularity of “mix and match” and the “casual” look.

The aforementioned trend of “mix and match” is especially popular among millennials. Traditional consumers of luxury fashion are more likely to be tempted by premium – and even the clean fast-fashion (Uniqlo, Primark). Instead of a “total look” of high end-luxury, less costly items are mixed into the consumer’s outfit. The “mix and match” trend is also affecting the increasingly sophisticated Chinese consumer; and with the urban middle class expected to reach 1.1 billion people in China and India by 2032, the premium market is likely to see even higher rates of growth in the future.

The popularity of the “casual” look – down jackets and sneakers, for example – has also been a boon to the premium and accessible luxury segments. In 2016, sneaker sales amounted to €3 billion in the Luxury segment, but sales were more than double (€7 billion) in the in the premium and accessible luxury segments. Apparently it makes less sense to purchase Dolce & Gabbana sneakers, since they are a traditionally cheaper product.

Related: Luxury market booms to €1 trillion thanks to personal goods consumption.