After the worst dip in its history in 2020, a direct result of the COVID pandemic that broke out early in the year, the personal luxury goods market experienced a V-shaped rebound in 2021, reaching €288 billion in value, according to Bain & Company, in its Luxury 2022 Spring Update – “Rerouting the Future.”
The study was released in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
According to the report, the luxury goods market benefited from a buoyant 2021 holiday shopping season across many regions, with revenues up 7 percent over the same period in 2019.
Additionally, China continued to see double-digit growth last year and Western markets experience sustained local demand— with the United States, in particular, maintaining momentum, even after federal stimulus cheques ended, the Bain report stated.
“Despite significant macro-economic challenges, including hyperinflation, slowing GDP growth and the Russia-Ukraine conflict, the personal luxury goods market proved resilient once again,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study.
GROWTH DESPITE WAR IN UKRAINE
2022 has also started strong for the the personal luxury goods market, growing at between 17 percent and 19 percent at current exchange rates over the same period in 2021, Bain stated. “Luxury goods brands started this year showing especially strong growth while also playing a leading role in the world’s ongoing sustainable and digital transformation,” commented Ms. D’Arpizio.
In Europe, the recovery continued despite the shadow of the war in Ukraine, and currently is on track to recover to 2019 levels – one year before it was expectated to. This, the report said, is thanks to booming local demand driven by a fierce “back to normal” attitude and a rebound in intraregional tourism.
In the United States, the luxury market is experiencing unprecedented growth as luxury brands are unleashing the real power of diversity and inclusion, discovering the true potential of the entire American customer base.
China, where spending has been challenged by the government’s strict COVID restrictions, the local consumer appetite for luxury remains strong and will potentially lead the country to recover between in late 2022 to early 2023, the report said.
South Korea is undergoing a profound transformation, replacing spending by tourists with local demand.
A booming tourist industry in 2022 is changing the equation that luxury market balance that dominated for the two years from the onset of the COVID pandemic in 2020,
It is the recovery of the luxury markets in China, where a strict zero-COVID policy remains in force, which will decide whether Bain & Co.’s moderate or optimistic scenarios come to be.
OPTIMISTIC AND MORE MODERATE SCENARIOS
Despite the challenges and disruptions that happened in early 2022, the mid-term direction of the luxury market remains unchanged, stated the Bain report, estimating that it is on a trajectory to reach between €360 billion and €380 billion by 2025.
In the optimistic scenario, where the first half of 2022 growth path continues throughout the entire year, the market would reach around €320 billion to € 330 billion by the end of 2022, growing 10 percent to 15 percent over 2021.
A slower pace scenario, which projects a potentially reduced growth pace due to a slower recovery of mainland China and challenged spending in mature markets caused by inflationary pressure and macroeconomic slowdown, the market will reach €305 billion to €320 billion by the end of 2022, growing 5 percent to 10 percent over 2021.
“In the last few months, luxury brands have been forced to reroute their futures” said Federica Levato, a Bain & Company partner and co-author of the report. “Winners will rapidly embrace the changes, ensuring they fully understand the implications of new geopolitical dynamics and cultural trends for all of their stakeholders: consumers, investors, employees and society at large. Those that come out ahead will take advantage of the opportunities presented by the virtual world, the sustainability transformation and preferences of younger generations.