Chinese & Millennial Consumers Driving Luxury Spend Growth

Retail and Consumer Confidence
27/10/2017 14:30

According to a new report from consultancy Bain & Co., after stalling in 2016, revenues from personal luxury goods are set to rise 6 percent in 2017 to 262 billion euros ($308 billion), thanks to thriving demand from Chinese and Millennial shoppers, writes Reuters. Earlier projections were for a growth rate of 2 to 4 percent, but as Bain opens its summary statement, "Luxury is back in fashion. The overall luxury market - encompassing both goods and luxury experiences - 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.

Reuters writes that while security threats in Europe had curbed tourist spending in the region in recent years while a Chinese economic slowdown had rattled the luxury sector, visitors to Europe are spending again and demand from middle class Chinese has rebounded quickly, helping to offset a more muted US market. 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, born between the early 1980s and mid-90s and who already represent a third of the market, and the older segment of "Generation Z" - the digital natives - are starting to make a dent in the luxury market, Bain said. Brands have been increasingly turning to social media or pairing up with popstars and so-called influencers, making sure their products chime with younger tastes and branching into casualwear and streetwear, with t-shirts, sneakers and denim. These efforts come at a cost, however. 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, the relentless march towards online sales continues, with sales jumping by 24 percent in 2017. They are forecast 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. Accessories remain the top category sold online, ahead of apparel; beauty and hard luxury (jewelry and watches), are both on the rise. Bain estimates that 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. The industry as a whole could notch up annual growth rates of 4 to 5 percent until 2020, Bain projected.