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Who is Driving Luxury Spend Growth?

According to a new report from consultancy Bain & Co., after stalling in 2016, revenues from personal luxury goods are set to rise 6% in 2017 to 262 billion euros ($308 billion), thanks to thriving demand from Chinese and Millennial shoppers, writes The Diamond Loupe.

The overall luxury market grew by 5 percent to an estimated €1.2 trillion globally in 2017. While sales of luxury cars (+6% to €489 billion) drove the market, and luxury experiences became more popular, personal luxury goods reached a record high of €262 billion, boosted by a return of Chinese buying at home and abroad, as well as stronger purchasing trends in other regions. “The growth in this market is more robust, driven by increases in volumes rather than prices, a rediscovered balance between tourist purchases and re-ignited local consumption,” said Claudia D’Arpizio, a Bain partner and lead author of the study.

Diamond Loupe said that visitors to Europe are spending again and demand from middle class Chinese got back on track quickly. Retailers’ attempts to connect with younger buyers and bridge a price divide between Europe and more expensive Asia were also paying off, Bain said. “Luxury goods companies have rethought strategies and are now regaining the trust they lost from customers,” said Federica Levato, a partner at Bain and a co-author of the report. The growth this year is “healthier”, driven by a rise in volumes rather than in prices and is balanced between tourist purchases and local buyers, Levato added.

Chinese buyers made up 32 percent of the luxury goods market in 2017, but Millennials, already represent a third of the market, and the older segment of the digital natives – are starting to make a dent in the luxury market, Bain said. While 65 percent of luxury firms will experience sales growth in 2017, only 35 percent will manage to increase their operating profit, Bain found.

Meanwhile, online sales jumped by 24 percent in 2017, predicted to reach a quarter of all sales by 2025, up from 9 percent at present. The U.S. market makes up close to half of online sales – which represented €23 billion in total – but growth was particularly strong in Europe and Asia. Online sales for personal luxury goods will make up 25 percent of the market by 2025, with stores still accounting for 75 percent of purchases, estimated bu Bain. The industry as a whole could reach annual growth rates of 4 to 5 percent until 2020, Bain projected.

Source: TheDiamondLoupe