Bain and Company and the Italian trade association Fondazione Altagamma have published their study on the global luxury market in 2021.
Based on a preliminary assessment that covers both luxury goods and experience market sales in nine main categories, total sales in the 2020 pandemic year will increase between 13 and 15% to 1.14 trillion euros (1.3 trillion US dollars).
However, the report also says the overall market will stay 9-11% below 2019 levels, largely due to a lack of experience.
Luxury hotels, gourmet and fine dining, visual arts, private jets and yachts will remain below 2019 levels, but will increase compared to 2020. Only luxury cruises are declining compared to 2019 and 2020.
On the flip side, luxury cars – the largest single category at 551 billion euros ($ 626 billion) – will end the year at or slightly above 2019 levels. Only fine wines and spirits ($ 77 or 88 billion) and high quality furniture and housewares ($ 45 or 51 billion) will surpass 2019 levels by 12% to 14% and 13% to 15%, respectively.
Personal luxury will squeak through 2019
The report retains the most ink in the private luxury market, the second largest with $ 283 billion ($ 322 billion) in sales, 29% more than 2020 to end the year + 1% before 2019.
Globally, America (31% SOM) and China (21% share) will surpass 2019 with a plus of 12% and 3% respectively, but Europe (-10% with 25% share) and Japan (-9% with 7% share) will stay underwater.
Called the âcore of the coreâ in the luxury market, personal luxury âcame backâ after a V-shaped recovery.
In the personal luxury segment, only shoes ($ 23 or 26 billion), jewelry ($ 22 or 25 billion), and leather accessories ($ 62 or 70 billion) will beat 2019 results and 2019 results by 5% , 3% and 4% respectively.
Beauty ($ 60 or 68 billion) and watches ($ 40 or 45 billion) will stay the same, and apparel ($ 57 or $ 65 billion) will decline 5% from 2019.
Despite the uneven recovery in personal luxury goods, the CAGR is projected to be between 6% and 8%, with sales of 360 to 380 billion euros ($ 409 to 432 billion) in sales by 2025.
This concludes the study’s breathless reporting on last year’s topline results in the luxury segment and says: “There has never been a year with such a strong performance as 2021.”
And yet, among the topline results are other insights that should pause, especially how the balance of power in the luxury market is now firmly in the hands of “power” brands, such as Steve Sadove, former CEO of Saks and currently advisor to Mastercard
The loot goes to the winner
The âstormy recoveryâ Bain speaks of applies only to the power brands. Two percent market share was all small brands (
While the report says, “There’s still a place for ’emerging stars’ in the industry,” one wonders where?
Before Covid, emerging luxury brands had hoped to make a foothold online where the power brands were reluctant to venture out, but that has changed. The big brands have moved aggressively into the online space over the past two years, which has grown from 12% of the private luxury market in 2019 to 22% in 2021, an impressive 38% increase since 2019.
In addition, around 40% of the online segment is now controlled by websites dedicated to a single brand, rather than multi-brand marketplaces. The share of mono-branded websites increased from 30% in 2019.
Online success depends, at least in part, on the amount of advertising money pumped into online channels. With digital ad spend soaring and power brands hitting the market – Magna reports that global digital media grew nearly a third year-over-year in 2021 – smaller brands can’t start using the online marketing muscle of the to keep up with big brands.
The pandemic has literally closed the doors of brick and mortar retail and they only partially opened in 2021. Specialized retail rose from 20% of the personal luxury goods market in 2019 to 16% in 2021, representing a 10% decline in sales. Department stores fell 8%, increasing from 18% SOM to 15% in 2021.
More worryingly, they are expected to remain on a downward curve through 2025, if they only hold between 10 and 12% stake at a time.
Sadove points out that these numbers may not be as strong as they seem at first glance. âThe customer wants a seamless shopping experience, anywhere, anytime. Physical stores are distribution centers for online. It’s not an either-or question, but both. Distribution is a complex discussion. ”
What Sadove sees distribution shifting is a move towards more concession models in retail from traditional wholesale to retail distribution. But that too will favor power brands that have long made concessions and leave emerging brands out in the rain.
Restructuring the luxury retail ecosystem
“High-end brands want to determine their own destiny, how they appear and how they are presented in the store,” he says, adding: “So we’re not going to move away from department stores, but rather change their economic relationships with them.” Concessions. “
Instead of wholesaling in stores and losing margins, Power Brands will instead pay rent, as they are already doing in their monobrand stores, which are up 3% from 2019 and have reached 32% market share.
Over the past twenty years, the wholesale market share has decreased by 72% in 2010 to 51% in 2021, with the largest decrease in 2019 of 60%. Now distribution is practically split in half, half through wholesale and half through retail.
While Bain doesn’t predict where wholesale and retail will end up by 2025, it is fairly certain that the 20-year trend away from wholesale will continue.
âThe economic model will continue to develop. The customer will shop and shop in different ways, âconfirms Sadove.
Second-hand luxury goods sales are not included in Bain’s estimate of the private luxury goods market size, but in 2021 Bain will have sales of 33 billion euros, or $ 38 billion, up 27% from 2019.
It’s already roughly half the size of each of the top three personal luxury goods categories – leather accessories, beauty, and apparel – and its 27% growth from 2019 leaves every other personal luxury goods category in the dust.
It can be argued that the buyer of used luxury goods is not the same as the buyer in the primary market. But with the future of the luxury market now rests on the shoulders of next-generation customers who are projected to account for 70% of global purchases by 2025, and those customers who are interested in sustainability, is a shift from firsthand luxury to used luxuries expected.
Finally, Bain’s positive growth outlook depends on Chinese consumers and their continued appetite for luxury brands. They are expected to account for between 40 and 45% of purchases by 2025, when mainland China replaces America and Europe as the world’s largest market.
But because of its vast cultural and geopolitical differences, China can be a risky bet for Western luxury brands. Daniel Langer, founder of the luxury consultancy ÃquitÃ© and contributor Jing dailyShe warns against “China chic”.
“Young and affluent Generation Z Chinese consumers find local brands much more ambitious and desirable than Millennials or Generation X,” he wrote when he realized that native Generation Z consumers are exceptionally proud of their Chinese cultural heritage and future potential.
Although he believes that Chinese luxury brands will not suddenly replace the pursuit of Western luxury brands, he warned: âThere are clear signs that a fundamental change is taking place and, like so many upheavals in the luxury space, it is being driven by Generation Z. driven forward. “
âChina chic is only a problem for brands that keep doing what they always have. Competition will intensify, new players will emerge, and consumer preferences will change quickly. Agile and proactive brands that are radically customer-centric have a chance to win, âhe advised.
These wild cards – thrifty luxury, next-generation consumers, and China – could continue to test the “strength, resilience and agility” that Bain says has enabled luxury brands to weather the “tremendous turmoil” of the past two years. But with more turmoil ahead, the power luxury brands are best positioned to take off.