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THE LUXURY MARKETS

LUXURY PRODUCT MARKET WILL TAKE UP TO THREE YEARS TO RETURN TO 2019 LEVELS, SUGGESTS BCG-ALTAGAMMA STUDY

 

Even the most optimistic forecasts of the high-end luxury product show a fall in sales of luxury personal goods from 35 percent to 45 percent as a result of the current global pandemic, reports a study just released by Milan-based office of the Boston Consulting Group together with Altagamma, the foundation responsible for promoting Italian luxury brands.

The best-case scenario will be if a COVID-19 vaccine becomes available or the economic ramifications of the pandemic are not too severe, and people will resume shopping and traveling and give a boost to luxury goods sales, the reports states. But the worst-case scenario will transpire if a vaccine takes longer to develop or the recession is more severe. In case of the latter, companies will struggle to regain momentum and people’s ability and willingness to buy luxury goods will suffer.

Pre-COVID estimates for the luxury market were on a positive trajectory, the study stated, with the global luxury market set to achieve 3.2 percent year-on-year growth for the period 2020-2022.

Taking all factors into account, the BCG-Altagamma study suggest that the industry’s recovery will be gradual, reaching 2019 levels only in 2022 or 2023, but this may change from category to category.

MOST CONSUMERS FEELING THE PINCH

Looking at luxury product consumers, the BCG-Altagamma study said that most reported feeling the impact of the crisis on their finances and, as a consequence, they are adjusting their spending behavior. Some 57 percent of consumers told the researchers that the economic uncertainty prevents them from making purchase and investments they had planned before.

While most luxury product consumers were reducing spending, at least in the short term, certain categories were definitely suffering more than others. Casual wear and cosmetics were expected to rebound in two years, but other categories could suffer the impact of COVID-19 for longer. Clearly the sectors that are likely to be the most profoundly impacted, and for the longest period of time, are hotels, cruises and holiday resorts.

While 43 percent of consumers agreed that recovery after the crisis would be gradual, geography did seem to make a difference when it came to the consumers general attitude. Chinese nationals emerge as being more optimistic about recovery, with 77 percent agreeing that bounce back will be fast. However, as the study pointed out, China is generally considered to be ahead others in the virus cycle.

Some 57 percent of consumers told the researchers that the economic uncertainty prevents them from making purchase and investments they had planned before.

Clearly the health crisis and economic crisis are closely interlinked, and solving the economic one requires that solutions be found for the other.

The study showed that 73 percent of Chinese consumers intend converting at least half of their yearly abroad luxury spend back to China over the coming 12 months.

CHINESE OPTIMISTIC, BUT HOMEBOUND

There is a growing body of opinion that the COVID crisis will in many respects accelerate the ascendency of the Chinese economy, and this could have long-lasting effects on world trade. 

In the opinion of the authors of the BCH-Altagamma study, due to COVID-19 and the limitations on international travel, Chinese consumers can be expected to concentrate their spending largely at home.

The study showed that 73 percent of Chinese consumers intend converting at least half of their yearly abroad luxury spend back to China over the coming 12 months.

“Due to the impossibility to nurture relationships with Chinese clients in Western countries, brands would need to relocate their marketing, PR and communication efforts to be closer to where clients are,” the study said. “For the same reason, they would need to review strategically their distribution footprint and think about penetrating the Chinese market with a local partner, especially in e-commerce.

The study showed that Chinese consumers half of the Chinese consumers polled that they will wait at least six months before traveling internationally, and at least eight months before traveling abroad specifically to buy luxury products.

When they do start traveling again, their top travel destinations will be Japan, France and Italy.

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