In the glittering realm of luxury, where opulence and exclusivity converge, a new chapter is unfolding. According to the latest insights from Bain & Company, in collaboration with Altagamma, the Italian luxury goods manufacturers’ industry association, the global luxury market is poised to reach an unprecedented €1.5 trillion in 2023. This remarkable projection, showcasing an 8-10% growth over the preceding year, not only underscores the industry’s resilience but also establishes a new pinnacle of opulence.
Resilience in the Face of Challenges
Amidst the intricate dance of geopolitical and macroeconomic shifts, the luxury market emerges as a beacon of resilience in 2023. Despite navigating through fragile consumer confidence, macroeconomic tensions in China, and subtle signs of recovery in the United States, the market showcases a robust growth of 11-13% at constant exchange rates. This consistency mirrors the previous year’s performance, marking a significant ~€160 billion increment in spending across various luxury categories.
The cornerstone of this resiliency lies in the personal luxury goods segment, a key driver that is projected to reach an impressive €362 billion by the end of 2023. This represents a 4% increase over the preceding year at current exchange rates. Yet, as we stand on the cusp of the fourth quarter, headwinds loom on the horizon, including fragile consumer confidence, geopolitical tensions in China, and a tentative recovery in the United States. The research suggests a potential softening in the performance of personal luxury goods in 2024, with low-to-mid single-digit growth over 2023, given the current scenarios.
Defining the Moment for Brands
Claudia D’Arpizio, a Bain & Company partner and leader of Bain’s global Luxury Goods and Fashion practice, asserts, “This is a defining moment for brands, and the winners will separate themselves through resilience, relevance, and renewal—the basics of the new value-centred luxury equation.” The landscape is evolving, demanding bold decisions on behalf of customers to stay ahead in the game.
Federica Levato, partner at Bain & Company and leader of the firm’s EMEA Luxury Goods and Fashion practice, emphasises the long-term growth potential rooted in strong fundamentals. Brands, she suggests, have the opportunity and responsibility to reinforce their meaning, leveraging strategic M&A to redefine the boundaries of the industry—a crucial aspect for future growth.
Regional Perspectives: A Tapestry Woven Across Continents
The global luxury market is a tapestry woven across continents, each region contributing its unique hues to the collective narrative. European tourism, resilient and resurgent, rebounds with untapped potential. Long-haul resort locations and key luxury cities draw high spenders, contributing to the region’s growth. Conversely, the Americas witness a deceleration throughout the year, impacted by widespread uncertainty affecting aspirational customers’ spending. The strong U.S. dollar against the Euro and favourable price differentials favour overseas purchases.
Saudi Arabia accelerates, becoming a magnet for major luxury brand investments, while Australia provides fertile ground for growth. Mainland China, after a robust performance post-reopening, experiences a gradual slowdown, with Hainan emerging as a promising luxury hub set to become an entire duty-free island by 2025. Japan thrives, propelled by local customers and a weak Yen, while South Korea faces challenges due to unfavourable macroeconomic conditions. Southeast Asian countries ride the wave of positive momentum, driven by strong intraregional tourism and growing interest from local consumers.
Category Perspectives: Crafting Luxury in Every Facet
Within the luxury tapestry, each category stands as a testament to craftsmanship, innovation, and enduring appeal. The analysis by Bain and Altagamma reveals a panorama of growth across all luxury categories, propelled by elevated prices, partially offsetting volume declines.
Jewellery: A Sparkling Investment
Jewellery emerges as a sparkling investment, poised to reach €30 billion in market value in 2023. Fine jewellery, in particular, asserts itself as a bright spot for investments amid the prevailing uncertainty, reflecting an investment mindset prevalent in the luxury market.
Ready-to-Wear: Exuding Excellence and Durability
The ready-to-wear category experiences positive growth, buoyed by top spenders’ affinity for ultra-high offerings. The demand for excellence and durability fuels this growth, emphasising the enduring appeal of luxury fashion in the hearts of discerning consumers.
Beauty: A Fragrant Flourish
The beauty category, driven by makeup and fragrances, enjoys positive momentum. The Americas and Europe witness the emergence of the lipstick effect, contributing to the sector’s growth. Fragrance, with its olfactory allure, continues to captivate luxury enthusiasts.
Watches: Timing Triumphs
Despite a rising polarisation around industry winners, the watches category continues to thrive. The artistry and precision of luxury timepieces defy challenges, maintaining their allure and significance in the luxury market.
Leather Goods: A Stately Pace
After years of over-performance, growth in leather goods slows. This category, which has been a stalwart in the luxury landscape, navigates through shifting dynamics, adapting to the evolving preferences of discerning consumers.
Channel Perspectives: Navigating the Blended Landscape
In the evolving luxury landscape, channels play a pivotal role in shaping the consumer experience. The monobrand channel takes center stage, leading the distribution ecosystem. Consumers’ quest for physical experiences and the increasing role of clienteling in sales propel monobrand stores to the forefront. The blending of physical and digital experiences necessitates brands to deliver excellence across the entire consumer journey, fostering a seamless and immersive connection.
Conversely, multi-brand environments experience a sharp slowdown, both in department and specialty stores. Questions arise regarding the evolution of their value proposition to best serve consumers’ needs. As the lines between physical and digital blur, brands are tasked with redefining their strategies to cater to the evolving expectations of luxury consumers.
Multi-generational Complexity: A Nuanced Dance
As the luxury market evolves, brands navigate through rising multigenerational complexity, addressing diverse needs across the consumer base. Generation X and Y, in their peak income years, represent the bulk of luxury purchases, shaping the key pool of income growth in the near future. However, Generation Z emerges as a force at the forefront of social and cultural change, inspiring value systems across other generations. With a strong desire for lived experiences and a quest for meaning, Generation Z is poised to account for 25-30% of luxury market purchases by 2030, while millennials will contribute 50-55%.
Luxury Market in 2030: Charting the Course Ahead
Looking ahead to 2030, the luxury market is poised for sustained growth, anchored in solid fundamentals. Chinese customers are projected to account for 35-40% of the personal luxury goods market, while Europeans and Americans collectively represent 40%. Online and monobrand channels are expected to claim two-thirds of the entire market by 2030. This future landscape demands a focus on differentiation and meaningful experiences throughout the entire customer journey, irrespective of touchpoints.
In this unfolding narrative, sustainability and technology emerge as pivotal elements for brands to lead on. Mergers and acquisitions will become a strategic necessity to address key challenges, ushering in a new season of evolution for the luxury industry
. As the luxury market continues to expand, maintaining a purposeful approach will remain central to long-term success. In a crowded market, brands must channel creativity and innovation to enhance relevance, cultivating a base of brand lovers to broaden their reach.
In conclusion, as we navigate through the realms of a €1.5 trillion luxury market, each facet, region, and category weaves together a tale of opulence, resilience, and enduring allure. The luxury market stands as a testament to the harmonious blend of tradition and innovation, where each projection, each category, and each moment encapsulates the essence of luxury—a timeless journey through the epitome of extravagance.
