After a severe contraction in 2020, due to the Covid-19 pandemic, the global luxury market grew back to EUR 1.15 trillion in 2021 and, in 2022, further grew another 19–21 percent, according to the recently released ‘Bain & Company-Altagamma Luxury Study’ report, conducted by Bain & Company and Fondazione Altagamma.
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In the report, the two market research firms said that the market for personal luxury goods, dubbed the “core” of luxury expenditure, also saw “impressive growth” in 2022, riding the V-shaped Covid wave witnessed in 2021.
In 2022, despite worsening macroeconomic indicators globally and specific challenges in China, the sector performed strongly across all quarters, and it is likely to have reached EUR 353 billion in retail sales value last year, recording an increase of 22 percent at current exchange rates (or 15 percent at constant exchange rates) compared to 2021.
“In 2022, we estimate that 95 percents of brands experienced positive growth, but most luxury players continued to invest for the future, which resulted in a slight erosion of average profitability following an unprecedented increase in 2021,” the report added.
Using findings from the global report, Retail in Asia takes a closer look at the luxury market in Asia in 2022, and the individual markets within the region, as well as breaking down the future growth drivers of the luxury market going into 2023 and beyond.
Old markets shine, while newcomers surprise
The U.S. luxury market proved very strong in 2022, while Europe managed to recover beyond pre-Covid 2019 levels, thanks to solid domestic demand, alongside a boost from U.S. and Middle Eastern tourist shoppers, according to the report.
However, China, which “remains crucial to the long-term future of the luxury market,” faced headwinds due to Covid lockdowns, “and sales are likely to be down in 2022, compared to 2021,” according to report authors.
Nevertheless, China’s luxury market is expected to recover by the second half of 2023, while Southeast Asia and South Korea “have been excelling in both growth and future potential,” the report continued.
China recovering, Southeast Asia rising
Locally, personal luxury goods in Asia (excluding Mainland China and Japan) surged by 43 percent in 2022, reflecting a strong performance in Thailand and other Southeast Asian countries, coupled with a “stellar year” for South Korea, which narrowed the gap with Japan in terms of market size. Hong Kong and Macau were weaker spots, while Taiwan slowly recovered, the report added.
In contrast, Mainland China lost a little ground, dropping 1 percent from 2021. The market was hurt by prolonged Covid lockdowns in the second quarter, which affected consumer confidence and resulted in lacklustre performances across all categories and channels, including online.
“We observed a rebound when and where Covid restrictions were lifted, yet not enough to offset the performance of the second quarter,” the report authors added.
Elsewhere in Asia, Japan personal luxury goods sales grew by 18 percent at current exchange rates to EUR 24 billion, catching up to its pre-Covid level. Local Japanese consumption was solid, and the market also benefited from the return of tourists after the country reopened to visitors, the report explained.
India clocking fast growth
While China cannot be rivalled in terms of growth contribution to the luxury industry, India and emerging Southeast Asian and African countries have significant potential, “if the luxury industry’s infrastructure, such as malls, and regulation can evolve quickly enough in those markets,” highlighted the report.
India’s luxury market could expand to 3.5 times its current size by 2030, “propelled by younger customers and an expanding upper and middle class,” the report added.
China to hold luxury lionshare by 2030
Looking ahead, the report also highlighted four growth engines that will reshape the luxury market by 2030.
Firstly, Chinese consumers should regain their pre-Covid status as the dominant nationality for luxury, growing to represent 38–40 percent of global purchases.
With that being said, Mainland China should overcome the Americas and Europe to become the biggest luxury market globally , representing 25–27 percent of global purchases.
Glovabally, younger generations (Generations Y, Z, and Alpha) will become the biggest buyers of luxury by far, representing 80 percent of global purchases, and online should become the leading channel for luxury purchases with an estimated 32–34 percent market share, followed by monobrand stores, at 30–32 percent market share.
The ‘new’ luxury
By 2030, luxury is also expected to have expanded beyond its traditional business model, typically defined by sales of new, quality products. “We expect that the growth of new types of activities, often powered by technology, will result in an additional EUR 60 billion to EUR 120 billion of luxury industry sales,” the report added.
While increased digitalisation (think the metaverse and NFTs, as well as brand-related media content and virtual stores and digital shopping assistants) are expected to increase in popularity, ahead of 2030, second-hand luxury good sales (by bringing more secondhand sales in-house, for example) will also increase over the next seven years, the report said, especially in Asia, accelerated as consumer acceptance increases.
In compiling the report, Bain & Company analyses for Fondazione Altagamma the market and financial performance of more than 280 leading luxury goods companies and brands. This database, known as the Luxury Goods Worldwide Market Observatory, is a leading source in the international luxury goods industry.