Aside from the far-reaching geo-political changes taking place, we are facing major shifts in consumer expectations with decision-making increasingly being influenced and driven by emotion. Whilst it is true that consumer desires vary depending on the individual, culture and income there has been a fundamental change in values towards a need for luxury experiences rather than “things”.
Examining five trends shaping luxury goods
- Affordable luxury
- Digital luxury
- Experience of luxury
- Sustainable luxury
- Health is the new wealth
Total luxury goods sales edge closer to USD$1 trillion
Global luxury goods sales reached USD$954 billion in 2017. After a challenging 2016, the industry rose by 4% in constant terms, driven mostly by very strong performances in Asia Pacific, and the Middle East and Africa. The healthy growth posted by markets like China and India has offset the poor performances of key mature markets, such as the US, France and Italy.
The US and key Western European markets continue to suffer from sluggish tourism flows, only slow economic recovery and recent terror attacks in key cities in Western Europe. These incidents are putting the sales of luxury brands under heavy pressure. Major cities like Paris and London have traditionally relied on a significant number of wealthy tourists. However the post-Brexit devaluation of Sterling is temporarily aiding sales of these products in the UK, with luxury shopping in London being of particular note.
Asia Pacific continues to generate lions share of luxury goods sales
Asia Pacific is the most important region for luxury goods worldwide, valued at USD373 billion in 2017.
China accounts for over 66% of regional sales, and ranks as the most important market globally. Higher taxes imposed on luxury items bought outside mainland China that came into in place in April 2016 have had an effect on private domestic consumption, with global brands and companies such as LVMH and Burberry reporting sales increases in China during the second half of 2016. Increasing price harmonisation has also helped to close the price differential against the key luxury capitals, boosting domestic consumption even further.
Hong Kong, on the other hand, remains the most important regional market from a per capita perspective (USD1,576), with Singapore (USD1,348) ranking second in Asia Pacific and third globally.
Luxury cars remain the cornerstone of the industry
Luxury cars sales accounted for almost 53% of all global luxury goods sales in 2017. This proportion grew over the review period, and it is expected to continue increasing through to 2022.
The significantly higher average unit price of a luxury car in comparison with other categories, like luxury bags and timepieces, is a key reason for its size. However, this is also owing to global wealth expansion, luxury car manufacturers expanding their portfolios into areas like electric cars and SUVs, and the shift in consumer preferences towards luxury experiences and lifestyle products over luxury “things”.
Hard luxury on the path to recovery
After several years of weak performance, sales of luxury timepieces and jewellery are starting to show signs of recovery. Global sales of luxury timepieces and luxury jewellery stood at USD28 billion and USD42 billion, respectively, in 2017. While luxury timepieces are still declining at a global level, sales in key markets like Hong Kong and Switzerland are on the rise again.