World luxury goods sales growth seen up 2-4% in 2017: Bain

A Kate Spade store stands in the SoHo neighborhood of Manhattan on May 8, 2017 in New York City.
A Kate Spade store stands in the SoHo neighborhood of Manhattan on May 8, 2017 in New York City.PHOTO: AFP/GETTY IMAGES

PARIS (REUTERS) - Global sales of personal luxury goods will grow by a stronger- than-expected 2-4 per cent at constant exchange rates in 2017, as higher spending in Europe and China outpace weakness in the United States and South-east Asia, a report showed on Monday.

In 2017, total revenue in the sector that includes watches, jewellery, clothes, shoes and leather goods will rise to 254 billion-259 billion euros (S$350 billion-S$357 billion) from 249 billion euros in 2016, the study by consultancy group Bain & Co 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 on the continent, less business in Hong Kong and slowing demand in China.

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

"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 Claudia D'Arpizio, Bain partner and lead author of the study.

Bain does not name specific companies, but in the first quarter of 2017 luxury giants LVMH, Kering and Hermes all posted strong results.

Bain partner Federica Levato, another of the authors of the report, told Reuters: "It's a healthier growth than before. So we have revised our market forecast for this year. Some players who are doing well are really outperforming."

Europe, which is starting to see tourists returning, is expected to be the fastest growing market for luxury goods this year, with sales seen up 7-9 per cent.

Bright spots were Spain, seen as a relatively safe destination, and Britain, rendered more affordable to tourists after a post-Brexit slump in sterling, while mainland China was also recovering with 6-8 per cent growth, said the report. Bain predicted that sales in the rest of Asia could shrink 2-4 per cent in 2017.

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 United States, the largest luxury goods market, is also set to underperform, with a strong dollar and uncertainty about the policies of President Donald Trump expected to create a challenging environment, said the Bain report.

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

By 2025 the so-called 'Millennials', the tech-savy generation born after 1980 and those born after 1995, will represent 45 per cent of overall luxury consumption, with Asian consumers accounting for more than half, the study added.