Hello readers! Welcome to 2020!
Last week I took some time off to read the analysts predictions for this year and answer the following question:
Where will luxury industry go next?
However, taking into account that luxury is the global industry and encompasses a wide variety of products and services, a question like this can be addressed from several different angles.
In order to answer my question, I gathered information on the overall direction of the luxury industry, mostly in terms of geographical markets.
Luxury Industry: Reset for 2020s
Since the start of the new millennium, the personal luxury goods market progressed through the following 5 stages:
Democratization (2001-2007),
Crisis (2008-2009),
Chinese Bulimia (2010-2014),
Reboot (2015-2016),
New Normal (2017-ongoing).
This November I attended Altagamma Monitor Conference, where Bain presented Altagamma Worldwide Luxury Market Monitor and updated its forecasts for 2020:
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.
According to Bain & Company, in the next 5 years, the personal luxury goods segment is expected to grow by 3 to 5 percent yearly at constant exchange rates to an estimated €335-375 billion.
However, growing political and geographic instability and changing consumer preferences may produce some unpredictable challenges that will impact the luxury market.
Solving the China Puzzle
While Chinese consumers continue to dominate the luxury scene, China and its SARs still remain tricky markets to tackle: as a result of ongoing Hong Kong protests, in the first days of January 2020, Louis Vuitton announced to be closing one of its Hong Kong stores.
Related article: Hong Kong Protests Force Louis Vuitton To Close A Store; Will More Follow Its Lead?
Recent Taiwan’s presidential election has also put pressure on the future of Taiwanese market, as reported by BoF:
It has been the stability of Taiwan’s fashion market that has made it attractive enough for luxury brands to keep investing, particularly as Hong Kong’s reputation as a hub for luxury shopping has taken a hit as a result of its continuing political unrest.
[…] Over the past ten years, Taiwan has transformed itself from a maker of low-cost fabrics into a world leader in functionally advanced, high performance and eco-friendly textiles. […] But with the election in focus, the risk of an escalation in tensions between Beijing and Taipei means that the stakes are high across the business community.
In Mainland China, lower-tier cities are fueling luxury growth:
First-tier and second-tier cities represent 56 percent of China’s luxury goods consumption, but lower-tier cities show strong growth in spending and purchasing power, according to online consumption data collected by Secoo over the past year.
[…] The growth rate in third-tier cities has surged ahead and even greater development potential has appeared in fourth-tier cities. In fifth-tier cities, the proportion of luxury goods consumers has exceeded 20 percent. Regions without luxury brand stores have huge room for potential growth,” the report said.
Related articles:
Recommended reading: Predictions for the Chinese Luxury Market in 2020
Emerging Markets for Luxury in 2020:
South East Asia
By 2022, Thailand, Malaysia, the Philippines, Vietnam and Indonesia will have around 350 million middle-class consumers and that growing middle class is graduating from premium products to the luxury sector.
South Korea
South Korea became the Kering Group’s second-biggest emerging market after China in 2017. But South Korea also deserves a mention for the so-called “hallyu” (or “Korean wave”) trend, which includes everything Korean, from cuisine and drama to K-pop and K-beauty products.
India
The market for luxury in India continues to grow although it is the slightly less expensive premium sector that will see the best numbers, with 7.5 percent compound annual growth rate annually […] The middle class in India is predicted to grow faster than counterparts in China or Brazil, at 1.4 percent a year between now and 2022.
Mexico
Thanks to various political and economic crises in Brazil, Mexico has recently overtaken its southern neighbour in luxury purchases […], becoming the biggest and fastest-growing market for luxury in the region
Middle East
The average shopper in the United Arab Emirates and Saudi Arabia still spends about six times more on fashion purchases than their contemporaries in China. […] Dubai, in the UAE, remains the largest hub for luxury shoppers, with sales there contributing 30 percent of the total in the region.
Russia
Despite an economic slowdown, McKinsey reported in its annual “State of Fashion” study that Russian luxury consumption may be back on track soon.
Consumer spending in the emerging markets play an important role in driving growth to the luxury sector, and while the Chinese consumers represent the majority of global elite shoppers, in the current climate of slow, but steady growth, the luxury companies should not focus on China only.
The fastest growing market for luxury industry that has no geographical barriers is online:
Sales of luxury goods are growing faster online than in physical stores, according to Euromonitor International, and this seems to be particularly true of emerging markets.
Thus, in order to make their products and services more accessible globally, the luxury companies should develop their online presence in the emerging markets. With recent news on Amazon, launching its luxury platform in the US, further to be introduced in other markets as well, the competition for the digital presence in the luxury industry will toughen in the upcoming years.
Thanks for reading,
Assiya Assanbayeva
Follow me on LinkedIn for more news and articles on Fashion & Luxury industry.