The Future of Luxury-NEW MARKET for NEW BRANDS who think creative excellence while reimagining the future with an insurgent mindset.

By BAINS&CO.

The turmoil of Covid-19 has been a catalyst for change for the luxury industry?

It has been a year of profound change in the way global luxury consumers live and shop, and in what they value. Scenarios for 2021 are varied, and Bain forecasts growth that ranges from +10%/12% to +17%/19% depending on macroeconomic conditions, the evolution of Covid-19 and the speed of return to travel globally, as well as the resilience and confidence of local customers.

The decline in revenue in 2020 should take a disproportionate toll on profitability—we expect operating profit to decline by 60% in 2020 compared with 2019 (i.e., from an average of 21% margin to 12% margin). According to our analysis, in 2021 the market is expected to recover 50% of the profit loss of 2020—but still remain below 2019 levels.

We expect sales recovery to gather pace over the next three years, with the personal luxury goods market returning to 2019 levels by the end of 2022 or early 2023.

We expect sales recovery to gather pace over the next three years, with the personal luxury goods market returning to 2019 levels by the end of 2022 or early 2023.

Luxury brands have faced a year of tremendous shifts, but the industry should come out of the crisis with more purpose and dynamism than before. By 2030, the industry should be drastically transformed. We will not talk of the luxury industry anymore, but of the market for “insurgent cultural and creative excellence.” In this new, enlarged space, winning brands will be those that build on their existing excellence while reimagining the future with an insurgent mindset. Luxury players will need to think boldly to rewrite the rules of the game, transforming their operations and redefining their purpose to meet new customer demands and retain their relevance, especially for younger generations, who are set to drive 180% of the growth in the market from 2019 to 2025.

Online channel accelerates, while stores will be redefined

The changes brought by Covid-19 increased the presence of online in every aspect of life. In the luxury market, online sales made up €49 billion in 2020, up from €33 billion in 2019. The share of purchases made online nearly doubled from 12% in 2019 to 23% in 2020.

Online is set to become the leading channel for luxury purchases by 2025, fueling the omnichannel transformation.

This dramatic increase comes at the expense of brick-and-mortar. We expect no growth in the number of stores operated directly by brands in 2020, and a possible decline in store footprints in 2021. Brands will need to adjust their networks to the new map of luxury buying, evolve the store role and its ergonomics and maximize the customer experience. The wave of transformation will not leave wholesale distribution untouched: Perimeter contraction, polarized performance and entry of new players will lead luxury brands to increase their control on the channel. Meanwhile, the secondhand market for luxury goods rose by 9% to €28 billion.

All personal luxury goods categories have seen declines in 2020

Despite a strong deceleration, accessories remained the largest personal luxury goods category.

Shoes and jewelry were the product categories that decelerated the least. Shoes were cushioned by demand in sneakers, falling by only 12% to €19 billion, while jewelry saw sustained demand in Asia and benefited from online sales. That category remains polarized with high jewelry and iconic, entry-priced items leading the recovery.

Watches and apparel both declined by 30%. For watches, Covid-19 amplified secular consumption pattern shifts. In apparel, formal wear demand was in sharp decline and apparel players faced increasing competition from social media savvy, direct-to-consumer brands.

Across product categories, entry-price items gained in relevance, reaching more than 50% of volumes sold in 2020. In the quest for pricing relevance, the rules of the game are rapidly changing accessible luxury as we knew it, due to increasing competition from new, insurgent brands with relevant purpose and innovative business models.

Read full article on BAINS https://www.bain.com/insights/the-future-of-luxury-bouncing-back-from-covid-19/