Outlook and 2018 Luxury Market Insights

When I started to recollect sources for this post, I was focusing my attention on the numbers as always. But since my role includes always the evaluation of the entire figure, I decided to give you a full overview of what are the key trends not only financially or data-driven from the market, but also from the overall best insights from customer experience point of view, in a creative way, as a source of inspiration to find market opportunities.

Why Conceptual trends from outside of a specific market matter? They matter because they represents an anticipation of what the society expects from us as a brand, as a company, as a product. Having done this intro, I come to the point trying to summarise a few important insights for the industry starting from the market figures.

Bain & Company and Fondazione Altagamma presented the Annual Overview of the Luxury market in Milan last week. The Luxury Industry panel, including sales performances from Personal Luxury Goods and Experiences, is expected to have a stable tendency and a positive outlook. Discover below more info on figures and trends.

Doing exact forecasts is never an easy work for Bain & Company: recently we saw how socio-political issues, commercial policies, and potential short-term soft recessions could change drastically the figures in the short term.

Anyway, the Global Luxury Industry reached €1,2 T in total sales during 2018 (+5% vs PY), with an overall expected growth of +3-5% by 2025.

The current year had been quite positive, especially for these categories:

• Personal and Luxury Goods: in particular shoes and jewellery +6% (€260 Bn) with an outlook of a +5% in sales growth for 2019, forecasted to reach €320-365 Bn in 2025,
• Fine arts (driven by a good performance of Public Auctions) +6% and high quality Designs and Interiors, Homewares +4% (€41 Bn),
• Experiences out performed: Luxury hotels +5% (€190 Bn), Cruises +7% (2 Bn), Gourmet and Fine Dining 6% (€50Bn), including the boost given by the demand generated by the new speciality selective Clubs for Spirits and Wine +4% (€71 Bn),
• and Luxury Cars +5% (€495 Bn).

Consumers behaviours are slightly changing as per effect of multiple factors. Younger generations driving the consumptions are not only digital oriented, they tend to prefer more intimate experiences. I have already highlighted the concept of micro-groups or sub-cultures as identification factors for Gen Z, (although I think it could also be applied for part of the Millennials too). This trend will be probably more evident during the next years.

Which are the main Countries influencing the stability in 2018?

Asia performed very well. Chinese consumers continue to grow, representing the 33% of the global market and luxury. Sales are sustained by the young generations with a better performance in the Mainland territories, rather than the travel retail channels. Between 2015 and 2018 purchases in Mainland China contributed twice as much growth as their spending abroad. Their share of global spending has continued to rise, reaching locally €32Bn (+20% at constant exchange rates), driven by rising demand rather than by price increases. Japan: performing well (+3% at current exchange rates to €22 Bn), thanks to the influx of travellers, although local luxury purchases softened slightly pushing brands to find new solutions to bring consumers back to stores, leading distribution models redesign processes in progress. Rest of Asia: +7% accounting for €39 Bn, South Korea on top , than Singapore, Thailand and Taiwan + Hong Kong and Macau for Tax Free Customers. The Americas +grew 5% at current exchange rates to reach €80Bn showing a good trend in Canada and Mexico. Strong Dollar exchange rates influenced purchases of Travel Retail from LATAM and Asia. Europe impacted just for a +1% at current rates for a total of €84Bn. This year also the Euro exchange rate has not been beneficial for travel retail. In other areas like the Middle East, growth was 0%, holding at €12 billion, mainly due to stagnation brought on by a recent government spending restriction, the introduction of VAT in some countries and the Oil price decline.

Sales Channels performances varied. Online is growing impressively +22% reaching €27Bn of which the +44% coming from US. Retail +4% and Wholesale +1% (considering the slowdown in store openings and the difficulties experienced by high-end Department Stores to survive). Physical channels are in a process of redefinition and integration. Interesting tests and experiences are in progress (for ie. the latest Nike's flagship in NYC) to be designed and delivered. I am very curious to see the changes in luxury. I dream to see how we will soon be engaged by Personalisation, Augmented Reality, Artificial Intelligence, Mystic experiences..

Consumers are increasing, so as their differences and the business must adapt to the main diversities. And, if you are questioning.. yes... things are getting more complicated. The effort and the attention should be increased at all levels.

Sizes, tastes and cultural - subcultural differences (religion, ethnicity, gender and minorities, lifestyles, individuality) should become part of the strategy and planning. The new generations Y and Z oblige the brands to adapt products, communication, marketing, supply chain, experiences. Gen Z, (meaning the 10% of the total market in 2025), in particular is the most demanding: they are more centered on self, rather than following specific models and enjoying the full omni-channel customer experience.

The main Luxury Market Macro Trends highlighted by Bain & Company for 2025 are:

1. More Chinese-driven purchases in Mainland China;
2. E-Commerce, Online, Digital will dominate in every purchase;
3. The consolidation of the physical retail will reshape his forms and definitions;
4. A Youthful market will disrupt the habits of the industry;
5. Meet the expectations. Co-Creation as an asset: each brand should sustain the conversation with the diverse customers with sensitivity for their needs and adapt itself;
6. One market to serve markets of one - Brands in 2025 will experience a cross-over of typical competitive boundaries. The standard model where brands grow to become either the specialist in a category or diversified towards lifestyle positioning will be taken to the extremes;
7. Nimble is the new black - Although investments will have an impact in the short term, profitability will stabilise assuming brands adopt a "smartest" approach across the value chain.

As I promised in the intro, I was going to suggest to approach also other factors, the general overview from the economy and society as a source of creative inspiration. Let's see which are other Opportunities and Macro Trends to be taken in consideration:

Source: Trendhunter, Fondazione Altagamma, Bain & Company

Looking forward to see the developments in the future!