UAE. Global luxury goods sales are defying initial concerns over Eurozone turmoil and fears of a cool down in emerging markets, and will exceed €200 billion in 2012; this according to Bain & Company, the leading advisor to the global luxury goods industry, in the Spring 2012 Update to its industry bellwether “Luxury Goods Worldwide Market Study,” which was unveiled at a conference hosted by Fondazione Altagamma, the Italian luxury goods industry trade association.
Bain further revealed that the Middle East luxury market will grow by 15% in 2012, leading the strong performance of the global luxury market.
Cyrille Fabre, Bain & Company partner who leads the Retail & Consumer Products practice for the Middle East, said: “The Middle East remains a crucial component in the sustained growth of the global luxury market. The region has opened exciting growth possibilities for key industry players and continues to be a major destination for a wide range of luxury brands. Bain’s latest Luxury Goods Worldwide Market Study reaffirms the robust shape of the global luxury market and likewise underlines the huge growth potential of the Middle East region.”
Bain also expects an average of 7 to 9 per cent annual increases in global sales to fuel luxury brands’ growth aspirations until the middle of the decade. The study points to a continuation of the core market trends that created sharp recovery from luxury’s 2008-09 recession: growth of online sales, rapid expansion in China, and shift from wholesale to direct-owned retail remain factors to watch.
As the industry matures around its global retail and e-commerce capabilities, however, the Bain study identifies new factors to watch in the mix of consumers and products that define the industry. Most important, Bain finds that luxury has become a more truly global market. Growth for 2012 of 2 to 4 per cent in Europe, 5 to 7 per cent in the Americas, and as much as 2 per cent in Japan will generate the highest sales in terms of absolute numbers.
At the same time, China’s growth of 18 to 20 per cent now stands alongside resumed growth in India and Russia, where recovery was delayed, and in a host of new markets where the luxury market is solidifying, including Azerbaijan, Brazil, Indonesia, Kazakhstan, Malaysia, Mexico, South Africa, Turkey and Vietnam.
“Brands must develop strategies with much wider reach than ever before,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “The lessons they learned in earlier emerging markets will help, but they now must manage even broader diversity of consumer preferences, and more variations in their model of how to take products to market.”
As consumers and product trends evolve, the study also finds that hard and soft accessories will consistently outperform even the rapid-growing luxury sector, as much as double the growth rate of other luxury categories. Market growth is tilting to the absolute end of the luxury spectrum, with the true highest-end brands and products outperforming more accessible offerings by 2 to 4 per cent a year. Within these trends, Bain has identified the top nine market-defining factors for luxury in the next three to five years:
• Chinese consumers, including their spending as tourists, now account for over 20 per cent of global luxury sales. Asian consumers (i.e., adding Japan, Korea, and Southeast Asia) account for more than 50 per cent
• Thirty per cent of global luxury sales now occur within emerging markets
• The average age of Asian luxury consumers is decreasing steadily, while that in Japan, Europe and the United States increases, creating a new generation of luxury consumers, but with very different tastes and preferences
• Women are encroaching on traditional male purchases (business attire, luxury watches), as women’s spending becomes increasingly independent
• Men are increasingly likely to seek traditionally female brand dimensions around “fashion” and “beauty” as well as product functionality
• Luxury product usage has crept in to more casual occasions, which in turn affects the kinds of products that brands develop (e.g. casual-chic apparel lines)
• Luxury is fueled by newer and bigger money. In turn, consumers’ insatiable chase for higher quality and greater craftsmanship/materials favors absolute luxury offerings
• Premium and fast-fashion brands are forcing luxury brands to rethink their value proposition by competing directly with lower segment luxury
• The convergence of stores, e-commerce, social media and mobile commerce is creating an “omnichannel” experience for consumers
“Fast growth is bringing even faster change to the luxury sector,” concluded Bain’s D’Arpizio. “With more markets to manage and accelerating trends to anticipate, brands that struggle to respond quickly may find the markets’ rapid growth a double-edged sword.”
Photo: Cyrille Fabre, Bain & Company partner and head of Retail & Consumer Products practice - Middle East
About the Bain ‘Luxury Goods Worldwide Market Study’
Bain & Company, in cooperation with Altagamma – the flagship trade association for the Italian luxury goods industry – has analyzed the market and financial performance of more than 230 of the world’s leading luxury goods companies and brands. The database of companies, known as the ‘Luxury Goods Worldwide Market Observatory,’ has become a leading and much studied source for the international luxury goods industry. Bain publishes its annual findings in its ‘Luxury Goods Worldwide Market Study,’ which was first published in 2000.
About Bain & Company
Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 49 offices in 31 countries, and its deep expertise and client roster cross every industry and economic sector.
About Bain in the Middle East
Bain & Company’s work in the Middle East spans multiple industries including Financial Services, Energy and Industrials, Public Sector, Telecommunications, Media & Technology, Consumer Goods & Retail, Private Equity and Sovereign Wealth Funds. Our clients are major listed companies, state-owned enterprises, government entities, financial investors and private or family-owned business. Our consultants have graduated from the best international and regional schools and bring extensive practical experience working in the region and beyond. We work seamlessly as part of the global network bringing the best of Bain’s industry and functional expertise to our clients.
For more information visit: www.bain.com. Follow us on Twitter @BainMiddleEast.