The latest half-yearly report from Bain & Company and Altagamma confirms the scenario of a less invigorating 2024 for the global personal luxury goods market, with growth of just 0-4% at constant exchange rates. And all this while luxury continues to flourish in the field of experience. Joëlle de Montgolfier, Global Director of Research for Bain & Company’s Global Consumer, Retail and Luxury business, commented on this latest study for LUXUS PLUS. EPISODE TWO.
2024 will not be a prosperous year for the luxury goods industry, according to the latest half-yearly report published on June 18 by Bain & Company in collaboration with Altagamma, the Italian business organization for the sector.
The Bain/Altagamma study has slightly lowered its estimates of last November, assuming a growth scenario of 0 to 4% compared to 2023 for the personal luxury goods market (including fashion, accessories, beauty and fragrances, jewelry and watches).
Although, as Joëlle de Montgolfier, Global Director of Bain & Company’s Consumer, Retail and Luxury Goods Research, points out, a more optimistic scenario of “+4 to +6%” is not entirely out of the question…
Whatever the case, luxury brands, especially those positioned in the personal goods category, will have to pull the right levers to stay in the race…
After reviewing the luxury consumption patterns described by Bain in its quarterly study, we’ll now turn to the state of the different geographic markets.
The “shame of luxury” in China
Geographically, the sector’s No. 1 concern is China, “in a phase of stagnation”, with “after two and a half years of growth, a lassitude towards personal luxury products”, explained Federica Levato, partner at Bain & Company, to Reuters.
Joëlle de Montgolfier (Bain & Company), for her part, points out that “the Chinese were quite traumatized by the almost two-year closure linked to covid” and that “since the reopening at the end of 2022, they need to catch their breath”. Moreover, the experience of the pandemic has prompted them to “reallocate spending“, in particular to healthcare. They have also realized that they need to take care of their parents and grandparents…
The slowdown in luxury consumption in the Middle Kingdom is also linked to the revival of Chinese tourism abroad, on the one hand, and, on the domestic market, to growing economic uncertainties and difficulties for many middle-class households, with rising unemployment. All this is leading to an unprecedented phenomenon in the country, the emergence of “luxury shaming” behaviour similar to that seen in America during the financial crisis of 2008 – 2009,” explains Bain.
As a result, Chinese luxury consumers are shying away from displaying themselves and frequenting shopping malls, going instead to private appointments, ” private events, such as art auctions, taking place in a more hushed setting” points out Joëlle de Montgolfier (Bain & Company). They also prefer less ostentatious fashions to more blinged-out items…
Hainan Island less attractive
In terms of Chinese tourism abroad, Joëlle de Montgolfier (Bain & Company) points to the resumption of their travel to Europe, “back in the first quarter of 2024 at 90-100% of their 2019 capacity”, or to Japan, “still at 70-80% of 2019 levels”. This departure from the territory has put at a disadvantage what had become the flagship vacation destination for wealthy Chinese in southern China: the tax-free island of Hainan. Its sales fell by 30% in the first quarter…
The United States, the other major luxury market, “continues to face strong macroeconomic uncertainties, despite signs of gradual improvement in GDP and consumer confidence”.
Joëlle de Montgolfier (Bain & Company) points out: “The decline in consumption observed in the first quarter of 2024 is less pronounced than it was in the third quarter of 2023. Economic growth has improved, the unemployment rate is stable, but there are still quite a few uncertainties, particularly political, with the upcoming presidential elections. The wealthiest are not too affected, but the middle and upper classes are more cautious. The consumption of the former is not enough to feed the entire luxury sector, which also needs aspirational customers”.
Resilience in Europe and Japan
Other markets are faring well, thanks both to the resilience of local consumption and their solid tourist numbers.
Such is the case in Europe, and even more so in Japan.
The old continent is benefiting from both “relatively sustained local growth, thanks to falling inflation and rising customer confidence indices in the region” and “the return of tourism, with many Americans in particular, while we should also soon see the Chinese”, explains Joëlle de Montgolfier (Bain & Company). First to benefit: “core markets such as France and Italy, but also Spain, while Germany is fairly stable and Great Britain continues to decline since the abolition of the post-Brexit tax exemption”.
For its part, Japan, already a good student of luxury goods for several years, continues to prosper thanks to both the strength of the local market and tourism, which attracts “new nationalities in addition to (…) the Chinese”. The weakness of the yen – “at its lowest level in twenty years against the dollar” – has boosted travel to the Empire of the Rising Sun, much of which was initially planned for the Tokyo 2020 Olympic Games, but was postponed due to the covid. Growing by 10-15% a year since 2019, the influx of tourists has thus exceeded pre-pandemic levels, and favors both “traditional destinations” and “new emerging luxury locations”.
“Japan has become a very popular destination internationally, including for Europeans and Americans” argues Joëlle de Montgolfier (Bain & Company).
Generation X and Baby Boomers, prime targets
As far as customers are concerned, luxury brands should no longer focus solely on the younger generation, once their main growth driver.
“Faced with rising unemployment and an increasingly uncertain future”, they are postponing their luxury spending.
On theother hand, luxury players are benefiting from turning more to Generation X and baby-boomers, their most upmarket customers “who continue to see their wealth grow and increase their spending”.
Many brands are thus focusing on their biggest customers, “emphasizing large-scale one-to-many events, but also investing to change scale, focusing on new territories, starting with sports”.
Growing interest in luxury sports
In addition to the more traditional and “elitist”sports, in which luxury brands have already seen a marketing interest for some time, they are now turning “to new sports such as padel, running or soccer“, which enable them to both “reach new audiences” and “renew their approach to existing customers”.
In this Olympic year, this sports-based marketing approach will be particularly well supported….
Generally speaking, although the 2024 financial year is likely to be more sluggish, it should not put a stop to the relentless development of luxury goods. According to the previous Bain/Altagamma study, the global luxury market (all categories, including material and experiential) could reach 2,500 billion euros by 2030. And despite the sluggish start to the 2024 financial year for personal luxury goods, Joëlle de Montgolfier confirms that such forecasts for the sector as a whole remain valid.
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Read also > BAIN & COMPANY X ALTAGAMMA STUDY: GLOBAL LUXURY WILL GROW LITTLE IN 2024 – PART 1/2
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