THE STATE OF THE LUXURY INDUSTRY 2019
Since consulting firms like Altagamma, Bain & Co., Boston Group and Mintel have been tracking the growth of the luxury industry on both the consumer and brand side of the spectrum, we’ve seen the luxury goods sector expand exponentially over the last decade. According to Altagamma Worldwide Luxury Market Monitor, the global luxury market has grown twice as fast as global GDP, on track to hit 1.26 trillion euros by end 2019.
True-Luxury consumers generated 30% of the luxury market or 278 billion euros, expected to hit 395 billion euros by 2025
The luxury goods sector is also rapidly changing, buffeted by the ebbs and flows of geopolitical and socio-political upheavals. Just two years ago, one could depend on a European metropolitan city like Paris to be a bellwether of luxury growth, named in 2017 by real-estate research firm Savills as the capital of luxury retail after it experienced the biggest growth in terms commercial luxury boutique openings. In the East, one could look to Hong Kong, an Asian financial hub where the world’s top brands situate their regional headquarters.
According to the BCG Luxury Market Model, 75% of the 2018–25 market growth is expected to come from Chinese True-Luxury Consumers
Today, both cities are battlegrounds for color-coded protestors: Yellow vests along Champs Élysées and black-shirted rioters along Tsim Tsa Shui. Once proudly only “Made in France” labels like Louis Vuitton are setting up factories in the United States, with farsighted Chief Executives like Bernard Arnault, keeping a step ahead of trade wars as US President Trump upends decades of geopolitical and economic stability in the developed world.
As the year comes to a close, the luxury market too has become a battleground every inch as heated as the socio-political, trans-national issues which fester. LVMH, looking to shore up its hard luxury segment (aka watchmaking and jewelry credentials) went on a shopping spree, acquiring American jeweler Tiffany & Co. (keeping in mind that a historic arrangement means that Patek Philippe watches are offered in Tiffany boutiques as well — it needs to be seen if LVMH would be selling Patek Philippe watches by proxy when the acquisition is confirmed mid-2020), Kering Group a fierce rival, has leaned into its soft luxury (couture and leather goods) advantage, attempting to diversify its dependence on Gucci with fast-growing alpine streetwear label, Moncler. Richemont Group too has been shopping — acquiring pre-owned watch retailer Watchfinder (by proxy, becoming the largest pre-owned Rolex dealer in the UK) and doubling down on eCommerce as it inks deals with Alibaba and makes further investments into Net-A-Porter. While the strategies of the world’s biggest conglomerates differ, the objective is the same — competitors struggling for a shrinking share of consumer spending, even while the ranks of the wealthy rise, exacerbating income inequality with a corresponding shrinkage of the middle class.
“Young Chinese consumers view ownership and affiliation with designer brands as a form of social capital. (They are) not just something to wear, but a lifestyle choice that marks them as part of a distinct and exclusive community. Most these young consumers are fresh to market, presenting both a tantalising opportunity and an implicit imperative for brands to stay current, or risk losing out to more digitally savvy rivals.” — McKinsey Luxury China Report 2019
Despite a recent contraction in fine art sales and fluctuations in jets and yachts, the demand for luxury continues to grow: 8% overall compared with the previous year. On the back of rising Chinese wealth, the injection of millions of new luxury consumers has altered the traditional dynamics of the luxury industry, creating a $1.2 trillion euros market. 10 years ago, Chinese shoppers were less than 15% of the global luxury consumption, this year, they accounted for 35% of the market and are expected to rise to 40% by 2025.
More than 100 million Chinese in the top 10% of the world’s wealthiest and that these families overwhelmingly (83%) want their scions to get educated in the West, that is to say UK and US. That’s a lot of wealthy Chinese students with annual personal expenditures of just under 35,000 euros.
According to the BCG Luxury Market Model, 75% of the 2018–25 market growth is expected to come from Chinese True-Luxury Consumers. Defined by the Boston Consulting Group in 2015, as those born and raised in the lap of luxury, where compromising with brands and products is not an option. This category of the luxury consumer is about exclusivity and customization these types of customers do not like to experiment and purchase luxury to reward themselves.
Globally, True-Luxury consumers generated 30% of the luxury market or 278 billion euros, expected to hit 395 billion euros by 2025 with the bulk of the growth coming from three other categories: the Status Seeker, defined by BCG as “followers” unlikely to experiment and buying well-recognised luxury products to show off wealth and success; the Little Prince, consumers aged 18–25 to whom luxury consumption comes as a second nature as a result of being born into wealthy families. To this group, luxury is about innovation and being cool and while they are statistically impulsive shoppers, meaningful interaction with the brands is especially important. Additionally, they are top spenders on travel; Finally, the Fashionista, penultimate trendsetters and consumers of fashion, knowledgeable on all brands and prevailing trends. These highly opinionated shoppers love experimenting with different styles, seeking fun and creativity in products and brands.
Millennials typified as the Megacitier category of consumer, defined as shoppers where luxury is about the latest trends, quality, and customization with global aspirations; a predicted to grow from 32% to 50% of the personal luxury market by 2025. A confluence of Credit Suisse estimates and McKinsey Luxury China Report 2019 underscores another specificity of great importance -that there are more than 100 million Chinese in the top 10% of the world’s wealthiest and that these families overwhelmingly (83%) want their scions to get educated in the West, that is to say, UK and US. That’s a lot of wealthy Chinese students with annual personal expenditures of just under 35,000 euros.
Meanwhile, the generation expected to supplant millennials only represents 4% of the personal luxury market at the moment but Gen Z consumers exhibit behaviors and values that will set the tone for the future of the luxury industry.
China has rapidly shifted from a market of Classpirational (Unsophisticated luxury consumers who played it safe and stuck to trusted brands) and Status Seeking consumers into a more sophisticated generation of luxury consumers — these will be the key drivers of the luxury market’s growth — they’ve come to shape luxury’s new aesthetics in almost all aspects, particularly watchmaking. At the same time, the luxury needs of these Chinese consumers are not uniform and defy generalization — it seems to be a common refrain given the semi-regular stream of a self-inflicted faux pas when it comes to Eurocentric brands attempting to communicate with that market.
