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According to the 19th edition of Bain & Company’s Global Luxury Market Report, China is set to become the largest luxury market by 2025. Globally, the luxury sector has to adapt to new constraints, and needs to transform its approach in order to remain resilient.
Historically, luxury markets in Europe and the United States have been fueled by international travel, especially by Chinese tourists. With the Covid-19 health crisis, the size of the market plummets to 217 billion dollars, a 23% drop compared to 2019. Thus, the market is back to its 2014 level. But a new report from Bain & Company predicts that wealthy Chinese consumers will spend more on their territory in the coming years.
The biggest drop ever recorded for the luxury sector.
“The global luxury market has been virtually closed“, said Federica Levato, a Bain & Company associate, citing store closures due to the pandemic. “And the immediate consequence has been the cessation of travel, basically. We had 11 months without any intercontinental travel“.
Since 2009, there had been no decline in the luxury sector. The entire luxury market, including luxury products and experiences, has experienced the same type of decline and its value is now estimated at around 1000 billion euros.
“We have all faced a difficult year with its share of rapid and unexpected changes, and the luxury industry has not been spared“, said Claudia D’Arpizio, partner at Bain & Company and lead author of the study.
Bain & Company remains optimistic, however, and expects a recovery to gather momentum over the next three years so that the market will return to 2019 results by the end of 2022 or even 2023.
“While our industry has suffered from the temporary inability to travel around the world and from the confines of confinement, we are confident that it has the resilience to weather this crisis. We have faith in its ability to transform its business and redefine its mission to meet new customer demands and ensure its relevance, especially for the younger generation“, says Claudia D’Arpizio.
The younger generations now represent a significant share of the luxury market, with buyers born since 1981 now accounting for nearly 60% of total purchases.
China is set to become the largest luxury market by 2025.
Europe is the first victim of this collapse of international tourism. While local consumption is holding up well, total consumption in the region fell by 36% at current exchange rates to 57 billion euros. Fourth-quarter sales are expected to fall by 10%, although the decline could be greater depending on the impact of further closures over the crucial Christmas period.
“We have a two-speed world, with Europe and the United States being hit hard by the second wave and by social and political uncertainty, while China is accelerating relentlessly day by day“, said Federica Levato, partner at Bain.
Globally, mainland China was the only region that ended the year with growth. Indeed, China posted a 45 percent increase at current exchange rates to a total of 44 billion euros. Local consumption also soared across all channels, categories, generations, and price levels.
“Chinese consumers were already a known force in the industry, accounting for one-third of luxury spending last year“, Bain said.
According to this year’s review, Mainland China is expected to be the only region to report year-on-year growth, with the country’s luxury market has soared 45 percent to 44 billion euros, according to Bain’s Fall 2020 Luxury Report.
A forced transition to digital.
The changes brought about by the coronavirus crisis have pushed the luxury goods industry to make a forced switch to digital. Online sales thus represented 49 billion euros in 2020, surpassing the 33 billion euros reached in 2019. The online channel’s market share doubled from 12% in 2019 to 23% in 2020.
The various luxury players must therefore adapt to the changes brought about by this health crisis and act accordingly while taking into account the customer experience, an essential point that is jeopardized by the closure of boutiques.
This increase is to the detriment of the physical markets. According to Bain & Company, the number of boutiques and stores directly managed by luxury houses will not increase in 2020 and the store networks could still be exhausted in 2021. As a result, digital is expected to become the main channel for luxury purchases by 2025.
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According to the 19th edition of Bain & Company’s Global Luxury Market Report, China is set to become the largest luxury market by 2025. Globally, the luxury sector has to adapt to new constraints, and needs to transform its approach in order to remain resilient.
Historically, luxury markets in Europe and the United States have been fueled by international travel, especially by Chinese tourists. With the Covid-19 health crisis, the size of the market plummets to 217 billion dollars, a 23% drop compared to 2019. Thus, the market is back to its 2014 level. But a new report from Bain & Company predicts that wealthy Chinese consumers will spend more on their territory in the coming years.
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According to the 19th edition of Bain & Company’s Global Luxury Market Report, China is set to become the largest luxury market by 2025. Globally, the luxury sector has to adapt to new constraints, and needs to transform its approach in order to remain resilient.
Historically, luxury markets in Europe and the United States have been fueled by international travel, especially by Chinese tourists. With the Covid-19 health crisis, the size of the market plummets to 217 billion dollars, a 23% drop compared to 2019. Thus, the market is back to its 2014 level. But a new report from Bain & Company predicts that wealthy Chinese consumers will spend more on their territory in the coming years.
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