A luxury shopping mall in Milan. Bain & Company expects annual sales for personal luxury goods, which include high-end fashion, handbags and jewelry, to total more than $312 billion by 2020. Credit Miguel Medina/Agence France-Presse — Getty Images
LONDON — Consumers of luxury goods will apparently worry for only so long about the effects of global unrest, economic fluctuations or a volatile political outlook before they start spending again. Or so suggests a new report by the consulting firm Bain & Company, which predicts an upturn in the beleaguered luxury industry this year.
After slowing sales amid fears of terrorist attacks, unpredictable stock markets and currency fluctuations that kept many tourists away from cities including Paris, the market will return to growth in 2017, according to the Bain report, the Worldwide Luxury Market Monitor, which was released on Monday. The report estimates a global personal luxury goods market of 254 billion euros to €259 billion ($284 billion to $289 billion) in 2017, assuming constant exchange rates, up 2 percent to 4 percent from €249 billion last year.
“It is a sad state of affairs, but people are becoming more accustomed to uncertainty being part of their lives,” said Claudia D’Arpizio, a partner at Bain who specializes in the luxury and fashion industries. “The impact of events like terror attacks are becoming less strong on the luxury market.”
The stronger forecast for 2017 stems from three factors, Ms. D’Arpizio said: a resurgence in Chinese consumer spending, both at home and abroad; a return of tourism confidence in Europe; and efforts by luxury brands to identify and respond to the tastes of specific groups of consumers, particularly millennials.
“The last several years have been very difficult for the luxury sector,” Ms. D’Arpizio said. “As recently as last October, we said that the market would continue to stagnate if brands failed to revamp their trading strategies. For those who have, the benefits are now starting to kick in,” she added, pointing to a polarization between “big winners” and “strong losers,” particularly in the race to capture the interest of younger customers.
The Bain report expects annual sales of personal luxury goods, which include high-end fashion, handbags and jewelry, to total €280 billion to €290 billion by 2020.
After terrorist attacks in Paris (the world leader in the luxury market), Brussels and Nice, European sales of luxury goods slowed drastically in the past 18 months, with many shoppers moving away from high-end goods, reconsidering travel or spending closer to home. But geopolitical turmoil has since become somewhat normalized in many people’s minds, Ms. D’Arpizio said.
Luxury sales grew 4 percent in the first three months of 2017 from the same period last year, lifted by particularly strong sales in accessories, jewelry and beauty products in mainland China, where the sector had been hampered by a slowing economy in that country, as well as in Europe.
While China and Europe are rebounding, however, the so-called Trump bump in the United States — increased enthusiasm among investors and businesses after the presidential election in November — appears to be giving way to what some are calling a “Trump slump.”
The once strong American luxury market is feeling pressure from falling tourism, for instance, as demand for travel to the United States has been hurt by factors including President Trump’s targeted travel bans and limitations on electronic devices allowed on some flights to the country. Bain also highlighted the strength of the dollar and poor performance of department stores, a crucial national sales channel, as causes for concern.
Despite those factors, the Bain report paints a cautiously optimistic global outlook for the sector, with moderate expansion expected in the coming year.
“The peak of the largest nationality wave ever to benefit luxury goods is behind us: There is not going to be another China,” Ms. D’Arpizio said. “That said, the growth we are seeing now is much healthier and less dependent on any one market or spending trend. The market is still very reactive. But for now, the luxury business looks in a much better place than it was this time last year.”