MILAN, Nov. 28, 2019 /PRNewswire/-- The luxury sector powered through geopolitical turbulence and recession fears in 2019. The overall luxury market – encompassing both luxury goods and experiences – grew by 4 percent at constant exchange rates in 2019 to an estimated €1.3 trillion globally. The core personal luxury goods segment followed a similar path, achieving 4 percent growth at constant exchange rates and reaching €281 billion. The nature of luxury customers is evolving fast: younger luxury buyers seek an ongoing conversation with brands which will force them to innovate both their business models and value propositions.
These are among the findings from the 18th edition of the Bain & Company Luxury Study, released today in Milan in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers' industry foundation.
"The global luxury market confirmed this year the moderate growth rate associated with the 'new normal' era, mainly driven by Asian buyers," said Claudia D'Arpizio, a Bain & Company partner and lead author of the study. "The luxury customer is present and increasingly active, dramatically rewriting the rulebook of the industry. Brands will need to pivot to a new model to respond to customers' needs when it comes to buying, consuming and communicating."
Asia delivers the majority of market growth; online continues to disrupt
Globally, online continues to gain share and now accounts for 12 percent of the market, with customers increasingly influenced and enabled by digital channels, also in their physical purchases. This is continuously disrupting the physical channel: Bain & Company anticipates that the global network of physical stores could peak in 2020.
Tomorrow's luxury buyers already know what they want
Millennial customers (also known as Generation Y, born between 1980 and 1995) have been steady buyers of luxury. They account for 35 percent of consumption in 2019 and by 2025 could make up for 45 percent of the market. Butit's the even-younger Generation Z that is poised to reshape the industry: by 2035 they could make up 40 percent of luxury buyers and they display behaviours that distinguish them from other generations.
"Gen Z customers are the new frontiers of tomorrow's luxury market – and they already represent a growing portion of luxury consumption in Asian markets," said Federica Levato, a Bain & Company partner and co-author of the study. "They see themselves as critical actors of the creativity and conversations with luxury brands; they are returning to products, stores and physical interactions with brands to truly connect and engage emotionally with them."
Social responsibility remains top of mind for luxury customers and encompasses more than just environmental impact: 80 percent ofluxury customers say they prefer brands that are socially responsible, particularly among millennials. Further, 60 percent of luxury customers think luxury brands should be more engaged than other industries.
The growth of the secondhandmarket, which reached €26 billion in 2019, is one example of a successful business model, which the luxury customers evolving mentality has encouraged.
"We see the secondhand market as a potential avenue for luxury brands to reach a new audience and enlarge their customer base," said Ms. Levato. "For many customers, this may be their first luxury purchase but luxury brands shouldn't see this as a threat and should manage it strategically to grasp the full potential of this opportunity."
When it comes to categories within personal luxury goods, shoes and jewelry stand out as the outperformers, both growing by 9 percent at constant exchange rates in 2019,followed by leather goods (7 percent at constant exchange rates)andbeauty(3 percent growth at constant exchange rates). Watchesdemonstrated a sluggish performance, declining by 2 percent at constant exchange rates.
Insurgent beauty players stand out for their remarkable performances in recent years, thanks to their unique customer-centric approach.
A growing customer base presents new challenges for brands
Bain & Company anticipates that the luxury customer base will expand to 450 million by 2025,up from 390 million in 2019, mainly thanks to the growing middle-class, especially from Asia.This willfurther stimulate the entry-price segments,which in 2019 already represent a sizable part of the market (35 percent within leather goods category and 30 percent in the jewelry), as well as the off-price channel, which grew by 11 percent at current exchange rates in 2019 reaching €36 billion.
"Going forward, luxury brands will need to connect with customers in an increasingly personal way," said Ms. D'Arpizio. "The products, experiences and ideas that they deliver will need to flow together to appeal to the emotions of younger customers, who are diverse, global and opinionated. The pace of innovation is already rapid, but new models of consumption, evolving channels, and changing customer desires will spur the need for even faster adaptation."
Editor's Note: To arrange an interview, contact Aliza Medina at firstname.lastname@example.org or +44 207 969 6480
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