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Three Trends Driving the Global Luxury Goods Market in 2023

7/7/2023
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As the global economy faces slower growth and high inflation, the challenges and uncertainties facing both luxury consumers and key players are escalating.

Extraordinary global disruptions over the last few years have led to the rise of a new economic reality that is shaping the consumption of luxury goods and business outcomes today

Source: Euromonitor International

However, this new economic reality is similarly setting the benchmark of what we should expect for the short-term outlook. Consumer activism, behavioural changes and technology are also forcing companies to review almost every business model and it is becoming increasingly difficult for luxury players to keep abreast of competitors and understand how the industry is evolving.

Luxury expenditure overall continues to lean towards products, exhibiting significant actual value growth in personal luxury goods and luxury alcoholic drinks, and comparatively more moderate growth in goods centred around luxury experiences and luxury cars. The revival of spending on experiences and luxury hospitality, however, will be the final aspect of luxury consumption to reach previous record levels due to its heavy dependence on the resumption of international tourism and business travel.

Asia Pacific drives impressive continuation of growth amid economic turmoil

The luxury market continues to bounce back. Overall sales are set to grow by a real 4% in 2023 to reach USD1.2 trillion. The outlook also remains positive, albeit with a slower pace of growth. With global sales already at pre-pandemic levels by the end of 2022, growth in the coming years will predominantly be fuelled by the enduring craving for luxury experiences, lifestyle, and hospitality.

Investment in luxury goods, particularly leather goods, jewellery, and timepieces, is anticipated to surge as an alternative asset class

Source: Euromonitor International

The prospect of utilising luxury goods for income generation through rental platforms adds another dimension to their appeal. Nevertheless, discretionary spending overall remains under intense pressure.

This continued bounce back is largely due to Asia Pacific (predominantly China) and the US. The recovery across the regions is uneven and almost four years on since the outbreak of the pandemic, only two regions, namely Asia Pacific and North America, have reached pre-pandemic levels.Global Luxury Goods 2023 chart 1.svg

Return of Chinese visitors marks pivotal moment for luxury travel and shopping excursions

According to Euromonitor International’s latest data, global travel flows are now sitting at approximately 85% of pre-pandemic levels. Inflationary spikes are eating into consumers’ spending power and the ability to travel. Nevertheless, the speed of recovery has been much stronger than predicted, with growth in global arrivals up by over 100% at the end of 2022. The outlook also remains bright, albeit with a much slower pace of growth. The hospitality and retail sectors will continue to focus on wealthy tourists with their numbers creeping closer towards pre-pandemic levels. However, the effects of the pandemic remain visible. Indeed, tourist spending is still down across some key destinations (particularly in Asia Pacific) such as Singapore and Thailand.

There are some interesting hotspots, especially in Europe and the eurozone, which are benefiting from the favourable exchanges rates and tax-free shopping

Source: Euromonitor International

Maybe one of the biggest stories in luxury travel is that after three long years, China’s outbound tourism is finally back as the government ended its “zero-COVID” policy. Pre-pandemic, China was the most important source market for travel and luxury spending for many Asian countries and key global luxury shopping destinations, particularly in the US and Western Europe. Uncertainty over the future of international travel to and from China, however, pushed many of these countries to look elsewhere for travel spend to reduce their reliance on Chinese visitors. Attempts to diversify tourism sources and luxury spending are likely to continue as the pandemic revealed the limits of relying too heavily on one source market for travel.

Lifestyle extensions provide untapped revenue and brand equity for luxury fashion and beauty players

Our relationship with the home has undergone profound changes since the pandemic, leading to a greater call on discretionary household spending in the luxury category. Indeed, due to the pandemic-induced lockdowns, our living spaces transformed, serving as multifunctional environments encompassing home offices, home gyms, and home entertainment areas, amongst others.

Luxury goods, including branded luxury items, are experiencing a redefinition, aligning themselves with the lifestyle category

Source: Euromonitor International

According to the latest data from Euromonitor International’s home design category, which includes the likes of home furniture, tableware, home décor, soft furnishings, and home fragrances, at the height of the pandemic in 2020-2021, global sales across this category saw an impressive 2% growth (in real terms), while other categories such as luxury travel and personal luxury goods saw steep declines. Sales in the home design category are expected to grow by just under 2% this year, with further growth of 7% predicted over the forecast period.

Similarly, the pandemic sparked a strong desire among consumers for real-life authentic experiences. According to the Euromonitor International Voice of the Consumer: Lifestyles Survey, fielded January to February 2023, many consumers state they want to live more in the moment, with over 50% saying they want to enjoy life and not plan for the future (up by almost nine percentage points compared to 2021), while almost 30% of consumers say they plan to increase their spending and visits to restaurants in 2023 (up by almost five percentage points compared to 2021). The trend transcends industries, particularly those manifesting in luxury travel and hospitality as well as other discretionary categories, and is allowing luxury fashion brands to penetrate this space by venturing further into luxury hospitality with branded cafés, restaurants, food and wine pop-ups and of course, luxury hotels being added to their portfolios.Global Luxury Goods 2023 chart 2.svgThis comes at a time when revenues in luxury hospitality are fast on the road to recovery.

Global sales of luxury hotels grew by a real 27% in 2022 with further real growth of 17% expected by the end of 2023

Source: Euromonitor International

Foodservice outlets, such as cafés/bars and full-service restaurants, are also experiencing an impressive growth trajectory. These opportunities are closely aligned and validated by the Euromonitor International Voice of the Consumer: Lifestyles Survey results from a panel of affluent consumers, who say they intend to spend more in 2023 on travel, wellness, and restaurants over other areas, such as fashion.Global Luxury Goods 2023 chart 3.svg

Read our article China's International Travel Recovery Takes Off for further analysis on the end of China’s “zero-COVID” policy.

 

 

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