In the current period, people are starting to spend less because they feel the cost of living is rising," said Chandler Monte, CEO of Affluent Consumer Research.
According to a new luxury market research report released by Bain-Altagamma, the growth of the personal luxury goods market is relatively flat, with only 4% expected to grow in 2023 at current exchange rates, against the backdrop of global growth8 to 10% of the global luxury goods market.
Text | pamela n. danziger
This year's luxury market will total 1US$65 trillion (€1,508 billion) in categories including automobiles, luxury experiences, wines and spirits, home décor and art. Personal luxury goods account for about $400 billion in annual revenue, accounting for 24% of the market. This segment includes clothing, fashion accessories, beauty, jewelry, and watches.
Report co-author Claudia D. D'Arpizio) said that in the past year, "it is a decisive juncture for all brands, only the best brand adaptability, products in line with the trend, and continuous innovation, in order to be invincible." And this is the basic principle of today's value-oriented luxury industry. ”
However, looking ahead to 2024, Dal Piscio believes that the personal luxury goods sector is likely to slow down on the basis of this year's 4 growth rate.
Solid foundation
While the solid foundations of the luxury sector provide "unparalleled resilience" for luxury brands, co-author Federica Levato believes that the future of the luxury industry still faces many challenges, not least the uncertainty caused by the slowdown in economic growth and the uncertainty of luxury consumption.
Although they have a stable income and an economic base, they are already putting off buying non-essential items.
"Their willingness to buy is also influenced by other factors, which are just as important to the development of the luxury industry as the number of people who can afford to buy luxury goods," she said. He added that only by "promoting the further integration of products and user experience" can the long-term growth of the industry be driven.
"The convergence between different segments of the luxury market will drive the market further in the medium to long term," she said, referring to the fact that individual luxury brands offer more in-store experiences, open restaurants, hotels and other experiential venues, and extend the romance of the brand from the product itself to the feeling of owning and wearing the product.
On the contrary, experiential brands are also expanding into the product and retail segments, "providing customers with services that cover all aspects of life". While the luxury industry is promoting convergence, data shows that market polarization will intensify over the next year.
This year there are fewer winners and more losers than last year. Last year, 95% of companies saw growth, but in 2023, about 65% to 70% of brands will be profitable, while during the global recession of 2008-2009, the percentage of winners for luxury brands fell to 35%.
Hopefully, things won't be as bad as they were during the last crisis, and in terms of data, the sector's differentiation seems to be more pronounced than convergence.
From the product to the service experience
As people now travel freely, consumers are more inclined to luxury experience services such as luxury hotels, cruises, and high-end dining. The growth of the luxury industry is mainly due to the fact that people are more inclined to spend their discretionary money on experience life after life has normalized, so the experience service category will increase by 15% year-on-year.
In addition, more and more luxury consumers are beginning to buy what Bain defines as "experience-based goods," particularly art, luxury cars, private jets and yachts, high-end liquor, and food. Sales of these experience-based items will increase by 10% this year compared to last year, which will gradually bring luxury sales back to normal levels.
Luxury goods will grow by just 3% this year. Among them, personal luxury goods and high-end furniture household items would be good if they could be on par with last year. The growth of the luxury industry is mainly due to the fact that people are more inclined to spend their discretionary money on experiential life after life has become normalized.
Generational differences
After a successful transition from baby boomers (born 1946-1964) to younger Gen X (born 1965-1980) and millennials (born 1981-1996), luxury brands must now turn to Gen Z (born after 1997). In 2016, baby boomers accounted for nearly one-third of personal luxury sales, with Gen Xers accounting for 38% and Millennials accounting for 27%. In 2023, the share of baby boomers drops to 11%, Gen X to 24%, and Millennials to 45%, with Gen Z's contribution to the market jumping to 20%.
By 2030, millennials will dominate (50% to 55%) and Gen Z will have a 25% to 30% share, but they will represent the different workhorses of luxury brands in the short term.
Bain – The Italian Luxury Industry Association** will see a six- to eight-fold increase in the number of "high-income" members among Gen X and Millennials over the next two years, as they are older.
The power of the younger Gen Z will be realized through their influence, being at the forefront of cultural and social change and inspiring value shifts among their elders. "Luxury brands need to target Gen Z and influence their parents or older siblings," Levato said. ”
The younger generation is characterized by a commitment to the pursuit of the importance of life, and their consumption behavior is more purposeful, emphasizing "life experience" and concern for the environment.
However, they are only 25 years old or younger, still in the process of exploring the meaning and value of life, and their understanding of luxury as a lifestyle has not yet been formed. Millennials and Gen X have a more mature view of luxury.
Income and wealth inequality.
On the one hand, luxury brands rely on the wealth of older consumers, and on the other hand, their future trends are influenced by younger consumers. And this contradiction is even more prominent in the case of luxury **substantial** in the post-epidemic era.
UK-based data analytics firm Edited has found that luxury goods have sold by 25% since 2019, making luxury even more difficult to reach for the key groups that support it – so-called ambitious consumers and high-income people in the early stages of wealth accumulation.
Luca Solca, an analyst at the Luxury Association and Bernstein, estimates that 40 percent of the luxury industry's total revenue comes from top high-net-worth individuals, who make up only 5 percent of the population, while another 60 percent comes from those below the HNWI standard.
According to the New York Times, "as global wealth inequality rises, luxury brands are doubling down on a smaller portion of their customers," noting that luxury goods are already so high that "who can sustain this market?".”
Luxury brands face a dilemma: whether to expand their reach by expanding their entry-level offerings, or leaning towards top customers who can afford the most exclusive products.
"There's always a paradox in the growth of the industry, because there are brands that have tens of billions of dollars in business and need to grow by expanding their customer base," Levator said. But this year, the core customer base is not growing, so brands must focus on the top consumer groups and key customers. ”
In recent years, top luxury brands have made inroads into the Chinese market to expand their customer base, but in 2023, there has been a rebalancing of geographical distribution, and the luxury industry has become much less dependent on Chinese consumers.
In 2019, one-third of personal luxury revenue** came to Chinese consumersBy 2023, this proportion will drop to between one in five and one quarter. On the other hand, the share of U.S. consumers is also growing, from 22% in 2019 to 29% to 31% in 2023, creating another challenge for luxury brands.
Are the U.S. consumers bellwether or outsiders?
Throughout 2023, the pace of development of the U.S. luxury market has gradually slowed. Bain & Company-The Italian Luxury Industry Association estimates that around 50% of the world's ultra-high-net-worth individuals live in the Americas, so the slowdown is particularly noteworthy.
At the end of the year, the Americas luxury market will see revenue fall by 8%, making it the only regional market to see a decline. With Europe peaking at 7% growth in 2023 (in part due to Americans spending overseas), Europe will overtake the Americas as the world's largest luxury market, with luxury market revenues in the Americas reaching $111 billion compared to $112 billion in Europe. However, U.S. consumers still account for the largest share of global luxury spending (29% to 31%), which is the biggest challenge for luxury brands in 2024.
Chandler Mount, founder of the affluent consumer research firm (ACRC), to which I belong, said: "If the United States is not already in a rapid recession in luxury consumption, it is rapidly falling into that recession. ”
ACRC's latest survey of affluent luxury consumers in the U.S., with an average income of about $400,000, found that their financial confidence index fell from 64 in June2 points (the highest for the year) fell to 55 in October6 points (the lowest of the year), the future luxury goods consumption index from 58 in June3 points dropped to 497 points.
"This suggests that growth in luxury consumption is likely to stall in the near term, but I'm not sure if it will turn to a decline yet," Monte added. "Of the 22 luxury and service experience product categories covered in the survey, with the exception of the aircraft first class, the purchase rate has declined in the past three months.
Purchases of luxury brand fashion accessories and leather goods fell from 21% in July to 11% in October, and luxury brands of fashion apparel fell from 25% to 19%.
"We are entering a period of reduced consumption due to the perception that the cost of living a good life is getting higher," Monte noted. ”
If this happens in the U.S., then the same is bound to happen in other regions, because the uncertainty that affects U.S. luxury consumers also affects other countries.
"War and conflict, combined with the resulting humanitarian crisis, have made people feel scared and reluctant to spend," Monte said. 'Politics' replaces 'policy', and wealth creation and continuation are more uncertain. Inflation and the rising cost of living have also made high-income earners less free to dispose of their possessions. ”
Bain - The report of the Italian Luxury Industry Association provocatively asks: "2023: are we at a decisive moment in the history of the luxury market?".The only answer to this question is "yes".
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