The Future of Luxury published by Bain & Company
Recently Bain & Company published the report on Luxury as: The Future of Luxury: Bouncing Back from Covid-19. From the Bain & Co, Claudia D'Arpizio, Federica Levato, Filippo Prete, Constance Gault and Joëlle de Montgolfier said, “Our 2020 Luxury Goods Worldwide Market Study outlines the pandemic’s drastic impact on the industry and points to a path to recovery.”
Covid-19 caused an unprecedented fall in luxury market size: The 19th edition of the Bain Luxury Study, for Fondazione Altagamma, the trade association of Italian luxury goods manufacturers, analyzed recent developments in the global luxury goods industry, as well as its future outlook.
The luxury industry as tracked by Bain & Company encompasses both luxury goods and experiences. It comprises nine segments, led by luxury cars, luxury hospitality and personal luxury goods, which together account for more than 80% of the total market.
The luxury industry has been heavily impacted by the Covid-19 crisis in 2020. The overall luxury market—encompassing both luxury goods and experiences shrank by 20% to 22% at current exchange rates, and is now estimated at approximately €1 trillion globally, back to its 2015 levels.
Sales of luxury cars continued to dominate the market, but declined by 8% to 10% at current exchange rates to €503 billion. Most luxury experiences (including luxury hospitality, cruises and fine dining) were disproportionately impacted (–56% at current exchange rates) and should be last to recover given their dependence on tourist flows.
Experience-based goods (including fine art, luxury cars, private jets and yachts, fine wines and spirits, and gourmet food) resisted better, declining by only 10% at current exchange rates. They should recover rapidly from the 2020 shock given positive consumption dynamics across most segments.
Personal luxury goods were severely impacted: The market for personal luxury goods—the “core of the core” of luxury segments, and the focus of this analysis, contracted for the first time since 2009, falling by 23% at current exchange rates to hit €217 billion. This drop is the largest recorded since Bain has been tracking the industry. Uncertainty will hover over the industry for some months to come.
An accelerated shift to local purchasing, driven by China: Mainland China has been the only region globally to end the year on a positive note, growing by 45% at current exchange rates to reach €44 billion. Local consumption has roared ahead across all channels, categories, generations and price points.
Europe has borne the brunt of a collapse in global tourism. Consumption on the continent fell by 36% at current exchange rates to €57 billion.
The Americas experienced less impact—the market fell by 27% at current exchange rates to €62 billion. In the US, department stores face an uncertain future, and the map of luxury consumption has been redrawn to move away from city centers.
Japan shrank by 24% at current exchange rates to €18 billion. The rest of Asia also struggled, with Hong Kong and Macau among the worst performers globally. The region contracted by 35% at current exchange rates to reach €27 billion.
The impact in the Middle East was mitigated by shorter lockdowns and repatriation of spending previously made abroad. In Australia, a slowdown from the wildfires was amplified by the halt of tourism. Overall, the rest of the world contracted by 21% at current exchange rates to €9 billion.
The regional shifts mark an acceleration of a rebalancing of where luxury purchases are made as tourists shift to buy in their home markets. The share of purchases made locally reached 80%–85% this year, and in the years ahead we expect it to represent between 65% and 70% as domestic purchases regain relevance especially in China and the broader Asian region.
Online channel accelerates, while stores will be redefined: The changes brought by Covid-19 increased the presence of online in every aspect of life. In the luxury market, online sales made up €49 billion in 2020, up from €33 billion in 2019. The share of purchases made online nearly doubled from 12% in 2019 to 23% in 2020.
Online is set to become the leading channel for luxury purchases by 2025, fueling the omnichannel transformation.
This dramatic increase comes at the expense of brick-and-mortar. We expect no growth in the number of stores operated directly by brands in 2020, and a possible decline in store footprints in 2021. Brands will need to adjust their networks to the new map of luxury buying, evolve the store role and its ergonomics and maximize the customer experience.
The wave of transformation will not leave wholesale distribution untouched: Perimeter contraction, polarized performance and entry of new players will lead luxury brands to increase their control on the channel. Meanwhile, the second hand market for luxury goods rose by 9% to €28 billion.