Young people bring strong growth to luxury brands worldwide
The Bain study on the global luxury market shows: Young people are driving luxury brands. The younger generations represent the entire growth in the high-end goods segment. Chinese customers account for a third of global luxury consumption.
Their world is expensive sneakers, it-bags and luxury cosmetics: young people are driving strong growth for luxury brands worldwide. The business with high-quality clothing, leather goods, perfume and jewelry is expected to grow by 6 percent to 260 billion euros this year. This is according to the latest edition of the luxury market study "Luxury Goods Worldwide Market", published for the 17th time by the international management consultancy Bain & Company together with the Italian luxury goods association Fondazione Altagamma.
Overall, high-end providers will sell around 5% more designer products, luxury cars, expensive trips, the finest food and drinks in 2018 than in the previous year, generating sales of 1.2 trillion euros. Cruises on exclusive ships are particularly popular, growing by 7%. In addition to the personal luxury segment, the art market and demand for delicacies and gourmet menus also grew by 6%. In contrast, sales of yachts and private jets shrank by 3%.
Asia provides revival
"The luxury market has embarked on a solid growth path at a moderate pace," says Bain partner and luxury goods expert Serge Hoffmann. The market is expected to grow by 3 to 5 percent annually to between 320 and 365 billion euros by 2025 - depending on the impact of the current political, socio-cultural and economic risks.
China plays a decisive role in this. The share of Chinese customers in global luxury consumption will continue to increase in the coming years. In 2018, it stood at 33% and will have risen to 46% by 2025. The Chinese are increasingly buying luxury labels in their home country. Sales of luxury brands there will increase by 18% to 32 billion euros this year. The rest of Asia is also currently boosting the luxury business. Driven by South Korea, consumption in Asia is growing by 7 percent to 39 billion euros. Even in Japan, luxury sales are increasing by 3 percent to 22 billion euros despite the ongoing crisis.
Europeans do their shopping properly
The strong euro is dampening the usually strong demand for luxury goods from Asian tourists in Europe. However, as Europeans themselves are shopping heavily, luxury labels in the Old World are still recording an increase of 1 percent to 84 billion euros. The booming US economy brought growth of 5 percent to 80 billion euros for luxury brands on the American continent.
According to the Bain study, only the younger generations are driving the market in all regions. Those born from 1980 onwards accounted for the entire growth of the industry in 2018 - in the previous year, their share was 85%. Accordingly, luxury brands are increasingly gearing their offerings towards the needs of young people. Almost all manufacturers now offer their products online. Online sales have increased to 27 billion euros this year. Compared to the previous year, this is an increase of 22 percent. Accessories in particular are selling well online.
Individuality is key
The younger customers are, the greater their desire for individuality. Generation Z, born from 1995 onwards, which according to Bain will make up 10 percent of top consumers in the foreseeable future, wants to be served personally in luxury stores, for example. "Labels should therefore revise their store strategy," says Hoffmann. "They need to use the latest digital technologies to improve the in-store shopping experience."
In addition, young buyers expect luxury goods suppliers to cater to their cultural characteristics and their different figures. For example, understated fashion, which is preferred by Islamic women, already accounts for 40% of sales of high-quality women's clothing in 2018. Around 20 percent of products in this category are in larger sizes or particularly casual clothing.
Vintage is booming
The second-hand trade in luxury goods has increased by 9% every year since 2015, most recently reaching 22 billion euros. Watches and jewelry in particular are bought second-hand. Millennials are the largest group of buyers, especially in Europe. The Old Continent accounts for 55% of the vintage market.
The growing influence of Asians, the rapid increase in online retail at the expense of brick-and-mortar stores, the demands of young shoppers and different cultures will fundamentally change the luxury business in the coming years. Nevertheless, Bain expert Hoffmann believes that luxury goods manufacturers can master this disruptive phase: "The prerequisite for this is that they proactively address market trends, follow their individual formula for success and focus on the next generations." And he adds: "It is essential to use innovative technologies in order to develop new business and service models."
About the study
Since 2000, Bain & Company, in collaboration with Fondazione Altagamma - the leading Italian association of luxury goods manufacturers - has been analyzing the market and profitability of 250 of the world's leading luxury goods manufacturers and brands. The company database, known as the "Luxury Goods Worldwide Market Observatory" and published annually as a study, has developed into a leading and globally respected source of information for the international luxury goods industry. Bain & Company Bain & Company is one of the world's leading management consultancies.
