The fall in sales is the largest recorded since we have been tracking the industry. The overall luxury market – encompassing both luxury goods and experiences – shrunk at a similar pace and now is estimated at approximately $1.3 trillion.
But while purchases of luxury products fell, online shopping for luxury goods soared, doubling its share of the market to 23 percent in 2020 from 12 percent in 2019.
All personal luxury goods categories have seen declines in 2020. Jewelry saw sustained demand in Asia and benefited from online sales, but the category remains polarized with high jewelry and iconic entry priced items leading the recovery.
“We have all experienced a difficult year of rapid, unexpected changes and luxury has not emerged unscathed,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “While the industry has suffered from a pause in global travel and ongoing lockdowns, we believe it has the necessary resilience to manage through the crisis. We have faith in its ability to transform its operations and redefine its purpose to meet new customer demands and retain its relevance, especially for younger generations.”
According to Bain, the luxury industry is on a path to recovery by 2022-2023. Consumer demand for action with purpose and social impact is growing and luxury brands are expected to demonstrate real and sustained commitment to diversity, inclusion and sustainability.
ACCELERATED SHIFT TO LOCAL PURCHASING, DRIVEN BY CHINA
Mainland China will be the only region globally to end the year on a positive note, growing by 45 percent at current exchange rates to reach $52 billion. Local consumption has roared ahead across all channels, categories, generations and price points.
Europe however has borne the brunt of a collapse in global tourism. While local consumption remains, regional consumption fell by 36 percent at current exchange rates to $67 billion.
The Americas experienced less impact and the market fell by 27 percent at current exchange rates to $73 billion. In the United States, department stores face an uncertain future and the map of luxury consumption has been redrawn to move away from city centers.
Japan has seen a polarised performance among brands with higher resilience of those deemed timeless and seen as long-term investments. The region shrunk by 24 percent at current exchange rates to $21 billion in 2020.
The rest of Asia also struggled, with Hong Kong and Macau among the worst performers globally. The region contracted by 35 percent at current exchange rates to reach $32 billion.
Mainland China will be the only region globally to end the year on a positive note, growing by 45 percent at current exchange rates to reach $52 billion.
Overall, the rest of the world contracted by 21 percent at current exchange rates to $11 billion.
The regional shifts mark an acceleration of a rebalancing of where luxury purchases are made as tourists shift to buy in their home markets. The share of purchases made locally reached 80-85 percent this year and going forward. Bain expects it to represent between 65-70 percent as domestic purchases regain relevance especially in China and the broader Asian region.
The share of purchases made locally reached 80-85 percent this year and going forward. Bain expects it to represent between 65-70 percent as domestic purchases regain relevance especially in China and the broader Asian region.
ONLINE 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 $58 billion in 2020, up from $39 billion in 2019. The share of purchases made online nearly doubled from 12 percent in 2019 to 23 percent in 2020.
Online is set to become the leading channel for luxury purchases by 2025, fuelling the omnichannel transformation.
This dramatic increase comes at the expense of bricks-and-mortar. Bain expects no growth in the number of stores operated directly by brands in 2020 and possible decline in store networks in 2021.
Brands will need to adjust their footprints to the new map of luxury buying, Bain says, evolving the store role and its ergonomics, and maximizing the customer experience. The wave of transformation will not leave the wholesale distribution untouched.
Sustainability and environmental issues have also become more prominent, and diversity and inclusion have come to the fore in 2020. Younger generations – who are set to drive 180 percent of the growth in the market from 2019 to 2025 – place an unprecedented emphasis on tackling social and racial injustice. These “activist” consumers seek brands that align with their vision and desire for purpose, Bain says.
“Luxury brands have faced a year of tremendous shifts but we believe that the industry will come out of the crisis with more purpose and more dynamism than ever before,” noted Federica Levato, a Bain & Company partner and co-author of the study. “By 2030, this industry will be drastically transformed. We will not talk about luxury industry anymore, but of the market for insurgent cultural and creative excellence. In this new enlarged space, the 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.”