The luxury goods market is expected to grow by around five to twelve percent in 2023, forecast the consulting firm Bain & Company and Altagamma, the Italian industry association of luxury goods manufacturers, in their joint study. And this despite the fact that 2022 was already a record year and momentum is slowing down in some regions.
Despite geopolitical tensions and macroeconomic uncertainty, the personal luxury goods market had a record year in 2022, reaching a market value of 345 billion euros. This momentum continued in the first quarter of 2023 and led to growth of nine to eleven percent compared to 2022.
Luxury industry is in a new phase
According to the new “Luxury Goods Worldwide Market Study – Spring 2023” by Bain & Company, the reasons for the growth are the gradual decline in hyperinflation, the regained confidence of local consumers in Europe, the opening of China after the pandemic and the positive Dynamics in Japan and Southeast Asia supported by intra-regional tourism. According to the study, however, a differentiated picture emerges in the individual countries. A slowdown is expected in the US as consumers are wary of a potential recession.
“Following its post-pandemic growth, the luxury industry is entering a new phase where new factors are determining winners and losers,” said Claudia D’Arpizio, Partner at Bain & Company and Head of Global Luxury Goods and Fashion at Bain. “Brands that want to be successful must have a holistic consumer focus, balance their exposure to different countries, offer a quality offering with a high level of customer intimacy and experience, and focus on iconic, timeless and statement pieces .”
USA is slowing down, Europe is growing, Asia is shifting
Despite having around $900 billion in unspent savings, US consumers are holding back on spending due to economic uncertainties and the expiration of the Covid relief funds. However, some of the top customers in the USA are shifting their spending abroad because the price differences are increasing. Against this backdrop, US luxury consumers are focusing their purchases on statement pieces across all categories, as well as new formal and occasion wear. At the same time, a rebalancing of luxury locations is taking place: regions like New York and California are returning, while vacation destinations like Hawaii and Las Vegas are recovering but still lagging behind their 2019 peaks.
Europe started the year strong, with sustained performance in the first quarter, thanks largely to top consumers. However, how the region develops will depend on how much tourism from the USA and the Middle East can continue in the second half of the year. Bain expects a drop here.
The market in mainland China, which showed growth in the first quarter, is expected to pick up again this year, with some but not all brands returning to 2021 levels. Meanwhile, the Asian market is undergoing a restructuring with old and new luxury magnets. Since the country’s reopening, Hong Kong and Macau have seen a strong resurgence as the main destinations for Chinese tourism.
Southeast Asia continued on its growth trajectory, fueled by an influx of Russian tourists, Chinese consumers and a strong appetite for jewelry and watches. South Korea, on the other hand, is slowing as local spending on overseas purchases is rebalanced.
Japan is the rising star in this region: local shoppers are keeping their spending going, and the growth is coming from overseas tourists who are primarily looking for best-selling accessories.
Top customers remain in a buying mood in all luxury categories
The study reveals a cross-category hunger for iconic and ultra-luxe pieces, true to the ‘less but better’. The top performing categories include watches and jewelry. Iconic bags continue to drive spending as they are increasingly perceived as a valuable commodity. Shoes are booming in Asia while slowing down in the western world and moving beyond sneakers. In beauty, the study shows growth in fragrances, fueled by niche offerings and the recovery in duty free, while make-up and skincare continue to show positive trends.
In terms of distribution channels, experiential and travel retail are regaining their luster and expanding into other luxury regions. Travel retail is recovering after a long-awaited rebound, thanks to momentum in Southeast Asia and Japan. The mono-brand category continued solid growth into 2022, driven by continued appetite for in-store experiences and shifts in consumer flows. Direct retail is also still on a solid growth path, which is increasingly being strengthened by the emergence of technology-loving consumers and omnichannel 3.0 sales.
Looking to the future: the luxury market continues to grow solidly
The luxury market is expected to grow to between €360 billion and €380 billion by 2023, up from €345 billion in 2022. Bain-Altagamma’s analysis suggests two scenarios:
A positive scenario shows a solid growth path in 2023, driven by China’s recovery and continued but stabilizing growth in Europe and the Americas, with personal luxury goods market revenue growth ranging between nine and twelve percent compared to 2022 should lie.
A realistic scenario shows that overall growth will be more negatively impacted by a slowdown in mature markets, potentially impacting luxury consumer spending, and a slower recovery in China. In this scenario, personal luxury goods market revenue growth is expected to be between five and eight percent compared to 2022.
In the longer term to 2030, the personal luxury goods market is expected to experience growth on solid market fundamentals, taking its value to €530-570 billion – around 2.5 times the luxury market in 2020.