International tourism and a stronger middle class are shaping luxury trends, with a focus on consumer nationality rather than geography
Mall of the Emirates, Dubai
“Slower, but steady is the ‘new normal’ for the global luxury market in 2014 – and potentially beyond, which is acclimating to lower, but more sustainable long-term growth,” explains Bain & Company, in the 13th edition of the “Luxury Goods Worldwide Market Monitor” released in collaboration with Fondazione Altagamma.
“Among currency fluctuations, persistent economic weakness in Europe and external forces, such as the Crimean crisis and protests in Hong Kong, demand from Chinese consumers and mature consumers in the U.S. and Japan re-approaching luxury have helped to counter a potentially significant downward momentum.”
- The global luxury market is on target to reach €223 billion in 2014
- Growth is forecast at 5% for 2014, slightly shy of 7% achieved in 2013
- The majority of luxury markets are now strongly driven by touristic spending
- Chinese consumers represent the top and fastest growing nationality for luxury
- Japanese consumers continue to consume luxury domestically
Over the next 10 years, Bain anticipates more significant changes in store for the luxury market. Not only will ‘Luxury 2025’ consumers be at the center of the customer experience; they will be the center of luxury itself – a critical part of the ideation, creation, and sales of luxury.
“ Growth is forecast at 5% for 2014, slightly shy of 7% achieved in 2013 ”
It’s No Longer A Case of Geography
With the exception of Japan, China and South America, all markets are now strongly driven by touristic spending – who is buying matters more than where they are buying.
Chinese consumers represent the top and fastest growing nationality for luxury, spending abroad more than three times what they spend locally. Conversely, Japanese citizens make most of their luxury purchases at home with the Yen devaluating by nearly 30 percent since 2012.
Tourists are also increasingly influencing the luxury market in the Americas, while tourists’ behavior in Europe is sharply changing as proven by the analysis of tax-free shopping in Europe, carried out in partnership with Global Blue.
“ Who is buying matters more than where they are buying ”
The analysis indeed reveals an overall slowdown of purchases by extra EU tourists, and a change in purchasing behaviors across nationalities.
- Chinese consumption grew by 10% in the first eight months of 2014 – a clear slowdown with respect to the same period in 2013 – showing a polarization towards the two ends of the luxury spectrum, the Accessible and the Absolute segments.
- Russian purchases are down by 3%, due to a slowdown of tourism flows, but show a positive trend of the very high-end segment, reflecting the resilience of top spender consumers.
- Middle Eastern is consumption up by 11%, continuing on the positive path of recent years, fueled by increasing tourism flows.
- Japanese purchases still negative (-15%), but showing a softer contraction of the Absolute segment.
Asian Tourists at Galaries Lafayette, Paris
Experiential Luxury Continues to Grow
Bain’s research finds that international travel and tourism is also creating an appetite for 360-degree luxury experiences, such as high-end transportation, including highly customized ‘super cars’ and yachts, as well as luxury hotels, cruises, and wines and spirits:
Growth in the luxury car market is solid, up 10% from 2013, driven by emerging markets, where luxury vehicles are still seen as a symbol of status and a social enabler. The high degree of personalization for vehicles and even after-sales services is helping to double or in some cases triple the basic price tag.
Hotels are benefiting from steadily growing demand, up 9%. Younger generations (30+), who are seeking superior lifestyle experiences, helped to fuel 5% growth in the cruise market.
While fine wine is often synonymous with luxury, non-alcoholic beverages are also gaining prestige – the ‘wine-ification’ of water. While the overall beverage category comprises 30% of the food and beverage market; demand for gourmet food is unrelenting, particularly in filling the gap for innovative gifts and even travel souvenirs.
Yachts are bouncing back at a low, positive single-digit pace (2% in 2014), while private jet sales are up 9 percent, boosted by emerging market demand – notably Brazil.
“ Growth in the luxury car market is solid, up 10% from 2013, driven by emerging markets ”
Regional Trends
The Americas were the undisputed growth driver in 2014 delivering 6% growth (at constant exchange rates, 3% at current) with slight slow-downs in the U.S. due to a harsh winter, and disappointing trends in Brazil also due to local currency devaluation; Mexico and Canada both maintained positive performance.
Europe – Growth across the content was up 2%, despite persistent economic challenges, socio-political tensions in Eastern Europe, and less dynamic tourism. Deteriorating consumer confidence halted any significant effects from the partial recovery among local spenders.
Japan regained its leadership position in 2014, driving a positive trend and an increase of 10% (at constant exchange rates, 2% at current), making it the best performing market in real terms.
Mainland China – Luxury spend in China showing for the first time a negative trend: -1% growth this year (at constant exchange rates, down 2% at current), due to greater controls on luxury spending and changing consumption patterns. Simultaneously, less established and younger Accessible brands have endeared themselves to the growing upper middle class ‘Wannabe’ segment, which is expected to double by 2017.
Rest of Asia – Greater China is flattening while South Korea strengthened its position as a trend-setter and influencer for fashion and luxury. In Southeast Asia, Malaysia and Singapore were hampered by the Malaysian airline accidents, but most of the rest of the region experienced a brisk pace of growth.
For a copy of Bain’s “Global Luxury Goods Worldwide Market Study, Fall 2014 Update,” please contact Dan Pinkney: dan.pinkney@bain.com
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