In the face of significant geopolitical and macroeconomic shifts, the luxury market appears to be weathering the storm, at least for the time being.
A new report by Bain & Company and Altagamma forecasts that the global luxury market is expected to achieve remarkable growth, reaching EUR 1.5 trillion (USD 1.63 billion) in 2023.
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“This is a defining moment for brands, and the winners will separate themselves through resilience, relevance, and renewal—the basics of the new value-centred luxury equation,” said Claudia D’Arpizio, a Bain & Company partner and leader of Bain’s global Luxury Goods and Fashion practice, the lead author of the study.
“The luxury market is generating positive growth for 65 to 70 percent of brands in 2023, compared to 95 percent in 2022. To stay in the game, it will be crucial for brands to take bold decisions on behalf of their customers.”
The personal luxury goods segment, in particular, has sustained consistent growth throughout 2023 and is projected to reach EUR362 billion by the end of the year, marking a 4 percent increase compared to 2022 at current exchange rates. This resilience showcases the industry’s enduring appeal and its ability to thrive amidst evolving circumstances.
Another notable trend is the recovery of consumer spending on experiences, which has soared to historic levels, fuelled by a resurgence in social interactions and travel.
Who’s driving growth?
Despite facing challenging macroeconomic conditions, the luxury market has demonstrated robust growth of 11 to 13 percent at constant exchange rates, aligning with the growth rate observed in the previous year. Global luxury tourist purchases are nearing pre-pandemic levels, with Europe experiencing growth driven by progressive tourism. The Americas, however, have seen a decline due to ongoing uncertainty impacting aspirational customers’ spending behaviour.
Mainland China initially showed strong performance following its reopening in the first quarter, but faced progressive slowdown due to new macroeconomic factors. However, Hainan, which is on track to transform into a complete duty-free island by 2025 is poised to become a thriving luxury hub, and Chinese customers are still projected to make up 35 to 40 percent of the personal luxury goods market by 2030.
Southeast Asian countries have experienced positive momentum, driven by robust intra-regional tourism and increasing interest from local consumers, particularly in Thailand. Australia has also emerged as a player for growth in the luxury sector.
Japan is experiencing a booming luxury market, driven by domestic customers and the favorable exchange rate of the weak yen, which is attracting tourist inflows.
In contrast, South Korea is facing challenges this year, with adverse macroeconomic conditions affecting local consumption and a strong currency diverting tourists to other destinations.
What luxury consumers are spending on
While all luxury categories are experiencing growth, jewellery is projected to reach a market value of EUR30 billion in 2023, with fine jewellery standing out as an attractive investment option amid uncertain times.
Beauty, driven by makeup and fragrances, is enjoying positive momentum, supported by the emerging “lipstick effect” in the Americas and Europe. Ready-to-wear is showing positive growth, particularly among top spenders seeking high-end offerings. The watch sector also continues to thrive, while leather goods is showing a slowdown in growth following years of strong sales.
In terms of distribution channels, mono-brand stores are leading the way, as consumers seek physical experiences and clienteling plays an increasingly important role in sales. The blending of physical and digital experiences necessitates brands to deliver excellence throughout the entire consumer journey.
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Conversely, multi-brand environments, including department and specialty stores, are experiencing significant slowdowns, prompting questions about how they can evolve their value proposition to better meet consumer needs.