Updated: Aug 21
Written by Ekaterina Dubinina
This report focuses on the luxury goods industry, which has been growing rapidly over the past few decades due to the economic growth of developing countries. The key players in this market are well-established brands such as Louis Vuitton, Hermes, Gucci, Chanel, Rolex, and Cartier.
The main body discusses the segmentation of the market with a particular focus on geographical and age segmentation and the changes that occurred in the segments in recent years.
Finally, the major trends affecting growth in luxury goods industry identified, such as a focus on e-commerce rather than in-store, growing base of Chinese consumers, millennials and generation X tastes and a rapid increase in high net worth individuals in developing countries.
Global luxury goods industry has been steadily growing for the past three decades when the industry faced dropping sales of €280 billion on average each year in 2015 and 2016 (forbes.com, 2017). However, in 2017 luxury goods industry made a “comeback” reaching a new high of 5 per cent to an estimated €1.2 trillion globally in 2017, and is projected to grow at a CAGR of 3.71% during the period 2017-2021.
Luxury goods industry is associated with high-value products in price, considered as a status symbol for individuals, high brand recognition, and exceptional service. Such kind of goods are very sensitive to economic conditions – this is why, during the Asian Crisis and Recession of 2008, the demand for such goods decreased significantly.
The market is segmented by product type, gender, mode of sale and geographical location. Luxury goods products include items such as designer retailing, cosmetics, jewellery, accessories and fine drinks with designer retailing such as designer brand apparels and footwear accounting for a major proportion of market share.
The key players in this industry are Louis Vuitton, Hermes, Gucci, Chanel, Rolex, Cartier, Burberry, Prada, Christian Dior and Tiffany & Co. The highest brand value of 29, 242 million U.S. dollar is held by luxury brand Louis Vuitton, with Hermes being the second most valuable and its brand value accounting for 23, 416 million U.S. dollars.
According to a report by Bain & Company, we can see the market breakdown by major nationalities in Table 2 below. It is evident that there have been significant geographical shifts in demand over the past two decades from America and Europe dominating the industry’s market, accounting for over 50% of sales in 2000, to China now being the major market player in luxury goods industry. This mainly happened due to the fact of China’s fast economic expansion and growth of the middle class.
However, China’s growth has been slowing down over the past couple of years and consumer confidence has been falling, which might bring new changes to the industry. A more recent Mintel Report on Luxury Goods Retail (2017) has similar findings, stating that Chinese consumers are the most engaged ones in luxury goods buying with over 55% of consumers bought a luxury product in the past 18 months.
Across Europe, the most engaged consumers come from Italy (36%) and Spain (34%). Moreover, research (Mintel, 2017) shows that about 21% of UK consumers have bought luxury goods in the past 18 months, which is a significant number. However, the majority of sales growth in 2016 came from wealthy tourists attracted by the weakened-pound. In fact, regardless of UK’s market value of luxuries, it has not been growing that rapidly but quite steadily, and accounted for €16, 456 million in 2016, which can be seen from the Table 3 below.
Based on Knight Frank’s 2017 Global Wealth Report forecast, such tendency is expected to remain in the UK as it is expected that the number of ultra-high net worth individuals (with a wealth of $30 million-plus) will rise by 30 per cent to 12,310 by 2026, in comparison to 9, 470 individuals in 2016 (Statista, 2017).
However, many doubt that due to the uncertainty associated with Brexit realization and its effect on the economy and population.
Trends in Luxury Goods Industry
Despite the fact that wholesale is still a dominant channel for luxury goods, accounting for 2/3 of the sales, online retailing has-gained a-momentum by growing 24% in 2017 and now taking up 9% of the market share channel (Bain.com, 2018).
However, it has been found that consumers across the USA and Europe are more likely to purchase luxuries online rather than in-store, whereas almost 50% of Chinese consumers still prefer to shop in-store due to the risk of buying fake products (Mintel.com, 2017).
In USA and Europe, this is due to millennials generation, which is reshaping the traditional ways of luxury shopping as they are the most digitally influenced consumers of luxury with 42% shopping items via computer or mobile devices (Deloitte.com, 2017).
Although China is a digitally advanced country and the rise of online retailers like Taobao and TMall has been huge over the past decade, when it comes to the luxury goods – Chinese customers are not there yet.
According to Mintel research (2017), concerns of Chinese consumers over buying luxuries online is high across all age groups with highest (59%) in 40-59 age group and at 47% on average in other age groups. The situation is not expected to change anytime soon, despite luxury brands’ attempts to develop a safe trusted platform “O2O” to increase online sales; Chinese customers still prefer in-store. In fact, they are the most price dependable consumers with 58% considering worth travelling abroad for a favourable-exchange rate to buy luxury goods (Mintel.com, 2017).
The changing age landscape of luxury goods consumers presents many challenges and opportunities to the brands because Millennials think and shop differently from the previous generation.
By 2025, Bain projects that Millennials and Generation Z will account for 45% of the global personal luxury goods market. It has been reported that millennial consumers of 45% are expecting increased personalisation of goods and services (Deloitte.com, 2017). There has been also increasing demand for affordable luxuries, as millennials like to mix luxury items with more affordable streetwear brands. Such a change in tastes stimulated major luxury brands to collaborate with more affordable streetwear brands, such as Louis Vuitton X Supreme.
Lastly, the population of ultra-high net worth individuals with a wealth of $30 million-plus is expected to increase significantly by 2026. While a large concentration of rich individuals will remain in the US, the large proportion of the increase will come from emerging markets with the growing population; Vietnam is expected to increase by 170%, India by 150% and China by 140%, respectively. Such a sharp increase can be explained by increased standards of living and increased rate of urbanisation.
Overall, it can be concluded that the luxury goods industry is changing geographical and age landscape of its growth, which originally came from the USA and Europe, now China making the largest proportion of customers.
Luxury goods customers are becoming younger and their style preferences are different. Therefore, luxury brands are faced with many challenges as well as opportunities of understanding tastes of millennials, how they shop and offer the products they would want to buy.
Some top brands already started adopting such change while others are taking it slow, therefore the environment of key players in this market can change drastically in the next 10 years. Technology advancement of the world also has a major effect, as more customers are looking to make purchases online due to the convenience.
Mintel.com. (2017). Luxury Goods Retail – International – August 2017. [online] Available at: http://academic.mintel.com.ezproxy.westminster.ac.uk/display/851029/?highlight#hit1[Accessed 30 November 2017].
Forbes.com. (2017). How Millennials Will Reshape the Luxury Market. [online] Available at: https://www.forbes.com/sites/msolomon/2017/06/20/how-millennials-will-reshape-the-luxury-goods- market-bain-luxury-report-2017/#4ac79bcb2f86 [Accessed 30 Nov. 2017].
Allied Market Research. (2017). Luxury Goods Market by Product Type (Designer wear & footwear, jewellery, accessories, travel goods, fine wine/champagne and spirits, cosmetics, and others), by Gender (Male and Female) and by Mode of Sale (Retail and Online): Global Opportunities and Industry Forecasts, 2014 – 2022. [online] Available at: https://www.alliedmarketresearch.com/luxury-goods-market[Accessed 30 Nov. 2017].
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Statista. (2017). The UK’s ultra-rich population set for a huge increase. [online] Available at: https://www-statista-com.ezproxy.westminster.ac.uk/chart/8377/the-uks-ultra-rich-population-set-for- a-huge-increase/[Accessed 30 Nov. 2017].
Statista. (2017). Value of various global luxury markets in 2016, by market type (in billion euros). [online] Available at: https://www-statista-com.ezproxy.westminster.ac.uk/statistics/246115/value-of-various- global-luxury-markets-by-market-type/[Accessed 30 Nov. 2017].
Global Power of Luxury Goods 2017. (2017). [PDF] Deloitte. Available at: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/consumer-industrial- products/gx-cip-global-powers-luxury-2017.pdf[Accessed 30 Nov. 2017].