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Global Luxury Goods Market to reach US$ 445B by 2025

As of 2017, personal luxury goods market has shown an increase in 5% at current exchange rates and 6% at constant exchange rates and the market size has reached approx. $300 billion.

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Definition / Scope

  • The overall luxury industry can be broken down into various categories such as luxury cars, luxury hospitality and personal luxury goods which account upto 80% of the total luxury goods market whereas the rest 20% accounted by other remaining segments such as Fine wines, fine foods, fine art, designer furniture, private jets & yatchs and luxury cruises.
  • For the scope of this report, the focus has been limited to the personal luxury goods market in the world that can further be divided into various groups such as: Watches & jewelry, clothing & footwear, beauty & cosmetics, bags & accessories and others.
  • As of 2017, personal luxury goods market has shown an increase in 5% at current exchange rates and 6% at constant exchange rates and the market size has reached approx. $300 billion. Among all the luxury good types, this segment is the core as the highest consumption and popularity is received by it.[1]
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Market Overview

  • As of 2017, the categories which grew at the highest rates are shoes and jewelry at 10% followed by handbags at 7%, beauty products at 4% and watches & apparel at 3% respectively.[1]
  • As of 2017, the highest market share is grabbed by the apparel segment at $69.84 billion followed by handbags at $62 billion and thirdly handbags at $54 billion respectively. These three categories together comprise of 62% of the total share of personal luxury goods market.[1]
  • The year over year growth of online sales channel for the luxury goods market has reached 24% as of 2017. $26 billion in revenues of luxury goods is accounted by this channel in the same year. On a regional level, 47% of the Americans followed by 25% of European and 28% of the rest of the world use online means to buy personal luxury goods.[1]
  • The most purchased category of luxury goods through online means are accessories at 41% followed by 26% apparel and finally beauty at 18% of total sales. Three business models are most commonly used through online channel which are Brand websites, retailer websites and e-trailers where 39% use the e-tailing model.[1]
  • Among all the luxury goods sales channels the airport, online and off-price stores continue to increase distribution at double digit whereas channels like departmental stores and mono-brand stores are decreasing in popularity.[1]
  • At present, of the total sales the wholesale channel remains most dominant accounting 64% of the total sales and remaining 36% grabbed by retail but the growth of retail stands at 8% whereas the wholesale channel growth remains unaffected at 3%.[1]
  • Similarly, the tax-free sales of personal luxury goods has risen particularly in European region with noticeable rises in UK and Spain at 22% and 19% respectively.[1]
  • Europe and North America constitute of the maximum share in the global personal luxury goods market at 33% and 32% respectively. Second position is grabbed by Asia which constitutes of 15%, Japan and China alone constitute of 8% each and remaining 5% by the rest of the world. The growth is share is experienced mostly by china at 18% followed by Asia at 9% and Europe at 7% respectively.[1]

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Top Market Opportunities

  • In the Middle East, the main challenges to progress in the luxury industry is retaining shoppers who might otherwise buy luxury goods elsewhere, mainly in European cities but this might be an opportunity for the rest of the luxury good suppliers based on other regions. This region is one of the prime locations comprising young populations in the world and millennials in the Middle East are not only rich but have a desire to spend more on luxury goods. However, addressing the needs of new luxury audience represents an opportunity to create brand loyalty, drive luxury spending, and foster market growth.[2]
  • At present the strategy has shifted to the luxury goods selling in large volumes and growth is driven by volume and not only significant mark price. The personal goods selling companies are already leveraging into mass markets and personal luxury goods are no longer limited to the affluent class of people as the purchasing power of the middle class people in some countries have risen due to which these segments could become the potential customers for personal luxury goods.[1]
  • Social media marketing is one of the most effective tools for businesses to promote at present times. Mostly because everybody including the older generation are in social media and although social media was considered as the mass market, today it is an indispensable area in marketing. Looking at the top personal luxury brands like Louis Vuitton , Gucci, Dior, Prada among others they have about 20-30 million followers on various media websites such as twitter, Facebook and Instagram. Thus, running campaigns, promoting and updating information through these sites can be effective strategies for the companies in future.[2]
  • Online Channel is one of the most evolving channels of distribution of goods at present. Social media influence continues to strongly grow especially among the younger generation people. As of 2017, the online market for personal luxury goods grabs about 9% share among all the channels but by 2025 the online channel is expected to have a market share up to 25% which is going to be the highest among all the channels. Thus, this is perfect opportunity for the luxury brands to promote and sell their products through online means.[1]

Market Drivers

  • At present, the luxury goods market is largely driven by the younger generation or the millenial's. As per the consumer share of the sales, generation Y accounts more than 30% of total sales and generation Z is also on rise. 85% of the growth is fueled by these two segment of consumers. Whereas, the older generation people or the generation X segment is stagnant which suggests that the present and future growth of the luxury goods market is being compelled by the millennials and mostly due to the proactive initiation of reaching out to the younger generation customers.[1]
  • As of 2017, the Consumption from China has bounced back and mainly the rise is encountered due to consumer confidence which has become emergent at recent times. The middle-class people have become more fashion-savvy. The consumption at domestic market reached 15% and also the consumption of the Chinese in foreign countries reached 32% which is the highest share in the global luxury goods purchase. Other countries that bounced back are Japan with 4% and Europe with 6% rise in consumption. Finally, USA also grew at 2% but the growth has become slow since previous years. And finally, the other regions showed a flat growth. But overall, the consumption is on rise.[1]

Market Restraints

  • Argentina is another country that is enticing bur despite of demand presence, the supply scarcity is predominant due to which people willingly shop from neighboring countries like Brazil and Chile. Finding a suitable location to open a store is a major struggle for luxury brands wanting to enter the Argentinian market.[2]
  • As the political and economic crisis prevails, Brazilian consumers have adopted most conventional attitude in general by cutting their purchases of luxury items and expensive goods. Sales of luxury goods have fallen since 2016 and is in the same level up till 2018, with entry-price luxury products being the most affected by the depletion in consumption.[2]
  • The acute situation of the luxury market in the UAE is result of the fall in demand due to the rising rent and education costs within the country. The recently introduced VAT in January 2018 has led to high costs and uncertainty in job market which has led consumers to save money and spend only on basic needs.[2]
  • One of the major barriers in India is that the government imposes high import duties on luxury goods which restrains India to remain uncompetitive in international market in terms of pricing parity. Further, demonetization and the introduction of GST dulled the luxury goods segment. [2]
  • Protectionism for domestic firms by imposing embargoes upon China was one of the most unsought decision made by the Government of USA because this could not only lead serious retaliation of China but also have USA to lose a chance to cater to growing consumer market of China. The Luxury goods purchase has been growing in China aggressively and it could be a strategic importance to US as a leader in luxury goods market to drive more sales however the government has not only hurt trade relations but also economic growth of both countries.[2]

Industry Challenges

At present the population of the entire world is on rise and the conventional concept of luxury is changing. What people used to consider luxury is common thing at present and luxury for consumers of today is something rare, unexpected and unique. Sustainability is one of the major issues that needs to be considered when producing such goods. Social media is on rise and issues like animal exploitation in beauty and other luxury products has been on news.

Many activists are campaigning against such products and they are no longer rejoiced as luxury products by the consumers. Thus, this changing consumer focus is one of the biggest challenges for the luxury brands to revamp their identities and product offering too.[3]

The entire global consumer landscape is changing and consumer value everything from quantity to quality and meaningful experience. The changing priorities among consumers is also changing their purchasing decisions thus it is a great challenge for the luxury brands to follow the latest trends and track the consumer needs. They also need to shift from the existing production methods and use sustainable luxury as an opportunity to grow.

Besides, the technological and economic changes are also making these companies vulnerable due to which they need to look for collaboration with small yet exquisite brands and build a portfolio or else the emerging players and intensifying competition will discard them from the industry.[3]

Technology Trends

AI driven recommendations

Estée Lauder company that owns the cosmetics company Smashbox launched its first Messenger bot for its domestic consumers back in UK which is aimed at assisting them to explore new products, read usage instructions, and locate the nearest stocked store. In December 2017, LVMH launched a "virtual adviser" on Facebook Messenger for its US clienteles. The chatbots answers enquiries related to any of the Louis Vuitton products, such as searching the brand’s online catalogue, giving information about the brand origination and providing instructions on product usage.[2]

Integrating AR with physical retail stores.

  • In July 2017 Estée Lauder broadcasted the launch of a chatty AR lipstick advisor that aids potential customers to identify an ideal lip shade for their complexion. Similarly, L'Oreal is increasingly focusing on AR to enhance customer experience as a part of the initiative, in March 2018 they acquired ModiFace, a globally recognized leader in AR and AI applications used by the beauty industry. [2]
  • YOOX's "Try, Share and Shop" campaign aligned with Lumyer in 2017 has helped to produce an AR camera app that enables users to try handbags, sunglasses and jewelry from YOOX in virtual reality. [2]

Other Key Market Trends

Mergers and acquisitions were the major highlights for the recent years in the luxury goods market with number of joint ventures and acquisitions occurring between multiple international luxury brand companies. Some of the noticeable happenings are as follows:[2]

  • Clothing & Footwear

As of July 2017, Christian Dior and LMVH has been integrated with a substantial fund of $12.1 billion provided by the Arnault Family and now the ownership of both companies is much simplified.

  • Jewelry & Watches

Michael Kors bought Jimmy Choo from JAB Luxury for $1.35 billion in November 2017. JAB is selling all of its luxury goods companies to focus on consumer goods.

  • Cosmetics & Fragrances

Estee Lauder has invested by paying $1.45 billion, 200 million and a lesser investment in respectively in beauty brands namely Too Faced, Becca Cosmetics and DECIEM. They are going to become part of the portfolio of Estee Lauder.

  • Bags &accessories

LMVH has set up a joint venture with Marcolin for the production, distribution and marketing of sunglasses and eyewear of some of the Brands such as Celine which is under LMVH group. LVMH also acquired 80 per cent of high-end luggage manufacturer Rimowa in January 2017.

  • Multiple Luxury Goods

As of October 2016, Coty completed their $12.5 billion acquisition of the Procter & Gamble beauty business. Coty's newly formed Luxury Division reported for the first time in the same year.

Market Size and Forecast

  • The global personal luxury goods market size is expected to grow at a CAGR of 6-8% and reach $315 billion dollars by the end of 2018. [4]
  • From 2019, the market is projected to grow at a CAGR of 4-5% and the global sales is expected to reach $445 billion by 2025 if the exchange rates remain stable.[4]
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Market Outlook

At present, the global economy is relishing a period of sustainability and strong growth across all regions. The indicators have shown a relatively high growth in Countries like Japan, European Union, China and US. Amidst an economic scenario like this the probability of happenings such as asset price bubbles and introduction of contractionary monetary policy is likely. However, the consumer market is one of the key markets in countries like Japan and Europe but the future of this market looks weak in these economies. Looking from an overall perspective the outlook for 2018 for global luxury market seems bright as annual sales at the end of 2017 has stood up at $1 trillion.

  • Europe

The GDP of the euro area is stabilizing and increasing more rapidly than that of USA. Germany, Spain and The Netherlands are the prospective growth countries. In terms of the luxury market, Western Europe remains as one of the top areas that account for highest market share and revenues. Tourism is the main factor that has supported the luxury market in Spain and France. The local demand for luxury goods has escalated in Germany and in Switzerland the famous luxury watch segment has finally showed signs to revive as the exports rose by the end of 2017. Eastern Europe has also started to tap on to the market and will become one of the major contributors of the revenue generated in the luxury goods market in near future.[2]

  • Russia

At present Russia is in a road to recovery where its economic growth seems uneven but overall stable. The luxury goods market of the country was performing poor since many years but has finally made progress since past two years. Since, Russia is also importer of international luxury brands the sales will depend on the price and for prices to improve the exchange rate has to become stable which is likely to happen by the end of 2018.[2]

  • USA

The economic growth of USA has been decent and due to inflation and credit cost being low the asset prices have risen stably. As the high level of borrowing can be encountered within the country, the spending on luxury goods will be low because the growth in wages is unattainable at the moment. US remains as the world's largest luxury goods market by the end of 2018 despite of some economic restrains. The market is diverse with healthy competition between national and international players where the penetration of market has been further improved due to added sales channel such as e-commerce.[2]

  • China

China is one of the world fastest growing economy with an annual growth rate of 6.5%. Over the medium to long term the growth is likely to be sustained. It is also growing excessively fast in luxury goods segment and its position is likely to be retained in near future. It also represents a high portion in the market and due to the rise in rich and fashionable middle class, the consumption of such goods is on rise. The rising number of millennials driven by latest trends and fashion has also helped China to establish in the market. The Chinese consumer are travelling overseas and shopping luxury goods mostly niche products in major markets like Europe and USA.[2]

  • Rest of Asia

As per the forecasts, the growth rate of fashion and luxury markets will be higher in that Asia and the Middle East than in other countries. In India, the rupee has strengthened against the US dollar, contributing to a low inflation situation. The luxury goods market is in initial phase with gradual development and is receiving opportunities from various investors aboard. Demand for luxury goods in domestic market is expected to remain strong over the next year. The positive outlook is driven by the aspiring urban customers with high disposable incomes.[2]

  • Japan

For next few years, the outlook for Japan is positive. Japan’s luxury goods market is prime in the world, is growing progressively after a long period of global and domestic crisis, and is predicted to grow further over the next years due to factors such as rising consumer confidence and the purchasing power of the younger generations.[2]

  • UAE

The growth in the luxury products market has been identified as relatively slow in 2017. Despite of some hurdles, UAE is one of the most famous countries for luxury goods segment as it is also strategic center for tourist visits and shopping. The competition is high and has been further accentuated because of online shopping trend. In future the market is likely to recover as economic situation redeems.[2]

  • Latin America

Private consumption has been the main driver of the economy in the region whereas the investment has drastically shrunk over the years. However, 2018 and future is encountered with increasing exports. Brazil has struggled since 2016 in its luxury goods segment however 2018 is expected to improve the economic condition of the market whereas Mexican economy is likely to thrive. It is also most attractive market for luxury goods in this region because of the presence of people whose purchasing power is increasing day by day.[2]

Distribution Chain Analysis

  • Overall, the most of the flagships of the luxury brands belonged to these five countries where highest number of companies are based Italy with a total of 23 companies among top 100 followed by US with 13, at the third position is UK with 10 companies, Switzerland with 9 and finally France with 9 companies respectively.
  • Based on the sales revenues earned annually, the companies can be distributed in three tiers, first tier being the highest earners i.e. more than $5 billion, second more than $1 billion and third up to $ 1 billion respectively.[2]
  • Among the top twelve or tier 1 where revenues are above $5 billion, 4 companies were based on France followed by 3 each from USA and Switzerland and one each from Hong Kong and Italy respectively.[2]
  • Among the top 49 companies i.e. tier 2 having revenue of more than $1 billion earning luxury goods companies where Italy grabbed the first position with 12 companies falling under this tier followed by USA with 9 companies in second position and France with 6 companies respectively.[2]
  • Remaining 50 companies falling under tier 3 where the overall annual revenues range between $200 to 1 billion dollars where Italy grabbed the first position with 11 companies falling under this tier followed by UK with 8 companies in second position and Switzerland at third position with 5 companies respectively.[2]
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Competitive Landscape

  • The top 100 luxury brand companies generated an accumulated revenue of $219.17 billion as of 2017 with an average of $2.2 billion per company and among these 100, 57 gained on their luxury good sales with 22 among 57 whose sales grew at a double digit rate. The only two companies among top 10 that were identified with a decline in sales were Ralph Lauren and Swatch group. Many others among top 100 also had slight decline in sales but the scenario is going to improve as of 2018.[2]
  • The year on year growth of the world's top most luxury good suppliers is recorded at 1% as of 2016 . The economic concentration of top 10 luxury goods selling companies stand at 47.2% and the minimum amount of sales required to be in the list of top 100 luxury good providers is $211 million.[2]
  • The profit margins of the companies have fallen as low as 0.7% up to 8.8% for some companies. 19 companies among top 100 were known to have double-digit profit margins among which top three were LVMH, Estee Lauder and Richemont.[2]
  • 49 out of 100 companies had sales of more than $ 1 billion. 12 luxury giants that has annual sales of more than $5 billion were based on either Europe or US. While, 39 smaller companies among 100 were family-owned businesses which earned more than $500 million yearly.[2]
  • There are new entries in the list of top 100 luxury goods selling companies where among the top 12 new entries 4 are from Japan, 3 from India, and 1 each from Canada, China, France, Italy and Hong Kong. Most of these belong to cosmetics & Fragrances and Jewelry & Watches segment of luxury class products. The top in the list is Sisheido Prestige & Co. From Japan.[2]
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Competitive Factors

  • The new entrant Canada Goose, which is based in Canada is a premium outwear brand made of natural ingredients. The brand has shown the highest CAGR growth and sales have risen by 63% in their home market with luxury jacket segment of the brand being sold in US and European countries.[2]
  • Denmark based PANDORA which is an affordable jewelry segment in luxury class is second fastest growing company at a CAGR of 30.3%. The brand has been recently expanding into new regions with launches of their stores in countries like Canada, China and New Zealand, with product portfolio ranging from charms, bracelets and Rings into Earrings.[2]
  • Digital initiatives definitely reinforced growth for Benefit Cosmetics, where the new website launched by the company was implemented in 24 countries. The watches & jwelery segment gained 5% market share and strong growth was identified in watch brands such as TAG Heuer, Chaumet, Fred and Bulgari.[2]
  • L'Oréal Luxe is the second fastest growing company among the top 10 and the company has revived climbing up in terms of position due to the growth in both of their segments i.e. 28.8% in makeup and 12.7% in fragrances respectively. Some of their brands such as Yves Saint Laurent brand with Giorgio Armani, Lancôme, and alternative lifestyle brands Urban Decay and Kiehl's are becoming emergent strongly.[2]
  • Luxottica's multinational the only eyewear business to appear in the top 12 in the list of 100 luxury good suppliers grew by 2.8%. They have recently added 1,000 new stores to their global network and also acquired local businesses such as Salmoiraghi & Viganò. The net profit margin was slightly improved and the latest $50 billion merger with French lens marker Essilor is expected to complete in second half of 2018.[2]
  • Italian companies Valentino and Furla also stated sales growth of more than 25%. Valentiono crossed the $1 billion sales mainly due to the competent management driven by the new CEO of the company Stefano Sassi and creative designer Pierpaolo Piccioli, together with widespread network expansion. Similarly, Furla's accessible luxury bags and accessories saw strong upsurge in markets like Japan and Europe.[2]
  • LVMH is still regaining its number one position in personal luxury goods market with 11% share in top 100. All of its segment have achieved growth but 60% goes to the LVMH's growth come from Fashion and leather goods. Its star brand is Louis Vuitton as well as others such as Kenzo, Fendi, Loewe, Céline and Berluti. Perfumes and Cosmetics showed the highest sales growth, 6%, including 10% growth in makeup which became the largest sub-segment for the first time.[2]

Key Market Players

The top twelve luxury goods companies which had an annual sales of more than $ 5billion are as follows:[2]

  1. LVMH
  2. The Estee Lauder Companies Inc.
  3. Compagnie Financiere richemont SA
  4. Luxottica Group SpA
  5. Kering SA
  6. L'Oreal Luxe
  7. The Swatch Group Ltd
  8. Ralph Lauren Corportaion
  9. PVH Corp.
  10. Chow Thai Fook Jewellery
  11. Hermes International SCA
  12. Rolex SA
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Strategic Conclusion

At present the top personal luxury goods sellers around the world have already engaged themselves with serving the customers of future i.e. the millennial's. The companies are already building strategies to cater to this segment as they are the real drivers of future growth and sales due to which focus must be on them. Besides, technology is also becoming the new pre-requisite and thus luxury goods sellers must tap on to the new channel as means of marketing and selling their products.

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 https://www.bain.com/insights/luxury-goods-worldwide-market-study-fall-winter-2017/
  2. 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 2.25 2.26 2.27 2.28 2.29 2.30 2.31 2.32 2.33 2.34 2.35 https://www2.deloitte.com/content/dam/Deloitte/at/Documents/consumer-business/deloitte-global-powers-of-luxury-goods-2018.pdf
  3. 3.0 3.1 https://blog.euromonitor.com/big-picture-global-luxury-goods/
  4. 4.0 4.1 https://www.bain.com/about/media-center/press-releases/2018/bain-spring-luxury-report-2018/


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