With the global economy still reeling from the negative impacts of the Covid-19 pandemic and consequential travel restrictions and lockdowns, the personal luxury goods industry has recorded its largest sales drop on record this year, falling by 23 percent at current exchange rates to hit US$256 billion, according to a recent report.
SEE ALSO : PODCAST #5: Beyond GEN Z
According to the 19th edition of the Bain & Company Luxury Study, in Milan in collaboration with Italy’s luxury goods association Fondazione Altagamma, the overall luxury market, made up of both luxury goods and experiences, shrunk at a similar pace in 2020, and now is estimated to be worth some US$1.19 trillion.
“We have all experienced a difficult year of rapid, unexpected changes and luxury has not emerged unscathed,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study.
“While the industry has suffered from a pause in global travel and ongoing lockdowns, we believe it has the necessary resilience to manage through the crisis. We have faith in its ability to transform its operations and redefine its purpose to meet new customer demands and retain its relevance, especially for younger generations,” continued Claudia.
Looking ahead, the company’s Worldwide Luxury Market Monitor predicted that the luxury industry will be path to recovery by 2022-23.
Personal luxury goods are forecast to reach sales of between US$391.7 billion and US$440.3 billion in 2025, with a compound annual growth rate of about 10 percent, driven by online sales and younger shoppers.
By 2025, Millennial and Gen Z consumers will be the dominant luxury market demographic, with an estimated 65-70% share of the market. Younger generations are also set to drive 180 percent of the growth in the market from 2019 to 2025, meaning luxury brands need to place an emphasis on tackling social and racial injustice, added Bain, as “activist” consumers seek brands that align with their vision and desire for purpose.
Likewise, online is set to become the leading channel for luxury purchases by 2025, fuelling the omnichannel transformation. Bricks-and-mortar growth is expected to stall, with little-to-no directly operated stores by brands opening in 2020, and a possible decline in store networks in 2021.
“Brands will need to adjust their footprints to the new map of luxury buying, evolve the store role and its ergonomics, and maximize the customer experience,” concluded Bain.