Luxury in 2021
The outlook for luxury
A study from Bain & Company assesses the trajectory for luxury goods recovery in 2021,with China and the US leading the way.
The market for luxury goods returned to marginal growth in the first quarter of 2021, compared to the same period in 2019, in an encouraging signal of recovery for the sector. That’s according to Bain & Company, a leading advisor to the global luxury goods industry, in the ‘Bain & Company Luxury Study 2021 Spring Update’. The report was released this month in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry association. Strong sales in China, recovery in the US, digital technology and the increasing presence of brands in the second-hand market are among the dynamics influencing the performance. “It’s clear that consumers still want to buy luxury goods, and this, along with the brands’ ability to adapt and innovate, is driving a return to growth in the market,” said Bain & Company Partner Claudia D’Arpizio, lead author of the study. On the regional drivers, Bain noted that China is playing a critical role in driving the recovery thanks to the repatriation of sales and acceleration of domestic spending. The US market has been “the unexpected bright spot”. There, renewed consumer confidence coupled with stimulus and a rapid vaccine rollout has meant that luxury consumption has returned at surprisingly fast pace. Europe still lags behind, notes the study, hampered by a slower vaccination campaign and the lack of international tourism. The outlook for 2021 still remains uncertain, says Bain. The luxury market is expected to reach sales of between €250-€295 billion, depending on which one of two scenarios outlined in the report plays out over the course of the year.
The luxury market is in recovery, notes Bain & Company, but travel retail is still some time away from reestablishing its former status as a sales and profit driver for leading brands (Istanbul Airport pictured)
Two possible scenarios for recovery
Under scenario 1 (probability 30%), the recovery path would continue throughout 2021, winning back 2019 market level as early as this year. In this outcome, the market could reach €280-295 billion. Under scenario 2 (probability 70%), despite the strong momentum of the first quarter, full-year growth is stifled by slower domestic luxury purchases and limited intra-regional tourism. In this case, the full recovery to 2019 levels would be expected only in 2022 and the market would reach €250-265 billion this year. As the luxury industry has navigated through the crisis, some trends have become apparent, says Bain. “The appetite of China and Chinese nationals for luxury remains insatiable and all customer nationalities are positively growing or on a recovery path. Growth of the online channel remains robust as new clients buy luxury online for the first time, and the range of prices is widening, with more entry-level products but also more high-end items.”
China to the fore: The striking Burberry environment at Shenzhen Airport Terminal 3
Among the trends to watch in the coming months are: Roaring ‘20s could reshape the US luxury market: The rebound in the US has exceeded expectations; improved macroeconomic conditions, a buoyant stock market, increasing consumer confidence and a fast vaccine rollout are contributing factors to a strong recovery. Bain says it has seen a change in the market map with new city hubs and a growing emphasis on suburban areas, as well as the rise of subcultural relevance and next-generation mindset. Human touch still matters: The pandemic catapulted luxury brands into the age of digital at an unforeseen pace. Bain estimates that more than 85% of luxury purchases were influenced by digital in 2021. But, it added, “the human touch in luxury remains needed and whether in-store or remotely, these interactions will play a critical part in maintaining customer loyalty”. The second-hand market touches multiple consumer segments: Bain estimates the second-hand market for luxury to be worth €28 billion in 2020 (up from €26 billion in 2019). The market for pre-worn luxury items encompasses not only entry level younger consumers who are mainly buying aspirational categories and products but also high spenders and collectors who are searching for high-end or collectable products. Brands are increasingly tapping into this market and becoming platforms to engage with consumers throughout the lifecycle of an item, says the analyst. “Brands have been forced to rip up the playbook and innovate rapidly in light of the crisis,” said Bain & Company Partner and report co-author Federica Levato. “As life hopefully begins to return to normal, customers are expecting a tech-enabled human relationship with brands. Winners will need to stay closely in touch with the key trends shaping the new normal lifestyle – all while remaining differentiated and creating a narrative that is true to their own culture.”
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The Moodie Davitt eZine Issue 296 | 26 May 2021
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