Growth in the global luxury goods market will be steady next year at 2014 levels, or around 5 percent at constant exchange rates, with the whole of America and Japan the biggest drivers, consultancy Bain & Co said in a report published on Tuesday.
The personal luxury goods industry has been through a slowdown since 2011 in part due to flagging demand in China where the government has cracked down on gift-giving, and economic weakness in Europe.
Industry concerns have been compounded by conflicts in the Middle East, the Ukraine crisis hitting demand in Russia – the No.2 luxury goods buyer after the China – and pro-democracy protests in Hong Kong, where many luxury brands made more than 10 percent of their annual sales.
Bain predicted total revenue from the personal luxury goods industry – which includes watches, jewelry, clothes, shoes and leather goods – to reach 223 billion euros ($282.70 billion) in 2014 against 218 billion in 2013, when sales rose 7 percent at constant exchange rates.
“For next year, we expect growth similar to 2014,” Claudia d’Arpizio, a partner at Bain and author of the study, said.
“The luxury goods market has entered a weaker growth cycle but it is more sustainable on the long term.”
For the first time this year, Bain noted that luxury spending remained flat in mainland China at current exchange rates with sales up only 1 percent at constant exchange rates.
“For the past 18-24 months, the upper middle classes in China have become more sophisticated and many big brands opened many boutiques which contributed to putting people off,” d’Arpizio said.
Opening too many boutiques tends to weaken a brand’s perceived exclusivity.
Sales growth in greater China, including Hong Kong, Taiwan and Macau, was 2 percent this year, against 7 percent the previous year.
WEAK ROUBLE, LOW CONSUMER CONFIDENCE
In Russia, the rouble’s weakness and low consumer confidence took their toll on spending with luxury goods sales down 7 percent at constant exchange rates and down 18 percent at current exchange rates.
Bain added that economic sanctions against Russia also put pressure on the country’s banking system and limited access to credit for many wholesalers.
This year, the luxury goods industry’s main growth drivers were North and South America, where sales rose 6 percent at constant exchange rates and Japan, with sales up 10 percent, the consultancy said.
Bain highlighted Americans’ rediscovered interest in luxury products, especially in younger generations with second and third generations of Asian American and Latin Americans.
Overall, Bain said sales growth at current currencies slowed down to 1.5 percent in the second half of 2014, down from 4 percent in the first quarter.
Online was the fastest growing channel – with sales up 28 percent in 2014 – and shoes as the top performing category, making up more than 10 percent of total sales.
Bain said shoes for the first time this year outperformed leather goods, with the 14 billion euro shoe business enjoying growth of 8 percent at constant currencies, beating the 37-billion euro handbag industry’s 4 percent growth.