Market for luxury goods set for growth

In coming years, the luxury market is set to keep expanding at an average annual rate of 3 per cent to 4 per cent.
In coming years, the luxury market is set to keep expanding at an average annual rate of 3 per cent to 4 per cent.PHOTO: REUTERS

Report forecasts rise in sales of 2% to 4% this year in the wake of strong Q1 results in sector

PARIS • Global sales of personal luxury goods will grow by a stronger- than-expected 2 to 4 per cent at constant exchange rates this year, as higher spending in Europe and China outpace weakness in the United States and South-east Asia, a report showed on Monday.

This year, total revenue in the sector that includes watches, jewellery, clothes, shoes and leather goods will rise to €254 billion to €259 billion (S$393 billion to S$400 billion), from €249 billion last year, the study by consultancy group Bain and Italian luxury industry association Altagamma showed.

The luxury goods sector has suffered in the past couple of years from fewer tourists coming to Europe after a wave of militant attacks there, less business in Hong Kong and slowing demand in China.

Last October, Bain had forecast 2017 growth of 1 to 2 per cent for the luxury sector, but the industry managed to grow 4 per cent year on year in the first quarter.

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"After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. The continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year," said Bain partner and lead author of the study Claudia D'Arpizio.

Bain did not name specific companies, but in the first quarter of the year, luxury giants LVMH, Kering and Hermes all posted strong results.

Bain partner Federico Legato, another author of the report, said: "It's a healthier growth than before. So we have revised our market forecast for this year."

Europe is expected to be the fastest growing market for luxury goods this year, with sales up 7 to 9 per cent.

Bright spots were Spain and Britain, rendered more affordable to tourists after a post-Brexit slump in the sterling, while China was also recovering with 6 to 8 per cent growth, said the report. Bain predicted that sales in the rest of Asia could shrink 2 to 4 per cent this year.

Hong Kong, Macau and Singapore are on the mend but Taiwan and South-east Asia face a fall in tourist numbers from China and South Korea, while Japan was seen as staying flat.

The US is also set to underperform, with a strong dollar and uncertainty about the policies of President Donald Trump.

In coming years, the luxury market is set to keep expanding at an average annual rate of 3 to 4 per cent to reach €280 billion to €290 billion in sales by 2020, driven by a growing Chinese middle class and a recovery in more mature markets.

By 2025, the millennials will represent 45 per cent of overall luxury consumption, with Asian consumers accounting for more than half, the study added.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 30, 2017, with the headline 'Market for luxury goods set for growth'. Print Edition | Subscribe