The personal luxury goods sector sales bounced back on 2017, advancing 6% at constant exchange rates, up from 0% in 2016 and 1% growth in 2015. The market now stands at €262 billion.
The global economy had enjoyed a period of strong growth in 2017 as a result of low interest rates across major regions, stable unemployment and less instances of terror attacks in Europe that had previously pushed overseas tourists away. Although consumer confidence has bounced back, the industry is still impacted by certain key risks that could affect growth and increase global uncertainty such as imminent rate hikes in the US, the strength of the dollar against emerging markets, the impact of Brexit, protectionist sentiment and trade tariffs.
The Largest luxury companies in the UK are;
– Burberry (largest)
– graff diamonds international
– Kurt Geiger
– paul smith
– Russell and Bromley
– jimmy choo
- Uncertainty looms over the UK owing to the slow negotiating process with the EU over Brexit and how this may possibly play out for the future of the UK economy. Consumers are already cutting back as inflation hits and a weak Sterling continues to push up import prices.
- The UK will continue to experience good growth as a weak pound currently makes it 22% cheaper for Chinese tourists and the most affordable luxury market in the world in which to shop. Growth will also come from UK shoppers domestically as demand for overseas goods become less attractive due to unfavourable exchange rates.
- Wealthy tourists from the Middle East, China, the US, and Russia continue to drive a significant part of the demand in the UK’s luxury goods market. It is therefore a market exposed to the risk of economic and political developments in those countries.
- The UK is a leader for digital developments in the market, for example through the use of social media; the emergence of wearable technology; and specific supply-side innovations.
Although growth in 2017 has been slower compared with other countries, the US remains the world largest luxury goods market.
It has been a good year for the States with inflation keeping steady, unemployment low and a strong dollar. As a result of low rates and increased borrowing, consumers have been spending more on luxury products, whilst consumer spending has been growing much faster than household income. Unless wage growth is to accelerate, this is not sustainable and there could be a retreat in growth seen in US in 2018 and especially as the Fed rate hikes are due to hit in 2018.
There is also the added danger of tariffs and a war with China, whereby the outcome would likely be an increase in consumer prices and a fall in consumer purchasing power. Moreover, protectionism aimed
at China could provoke severe retaliation, hurting trade and damaging economic growth on both sides of the Pacific.
The US had 14 companies in the Top 100 with the biggest three in the Top 10: Estée Lauder, Ralph Lauren and PVH Corp.
In 2017, at constant exchange rates, the Chinese market grew at a modest 6.5% but better than in 2016. In fact, China is one of the fastest-growing countries for luxury goods and this will continue in 2018. Chinese luxury consumers represent a high proportion of the global luxury market and the rapid rise of a more affluent and fashion-savvy middle class is bolstering luxury consumption.
Europe is the main foreign luxury shopping destination for Chinese consumers, followed by the United States, while Hong Kong SAR and Macau SAR are the main domestic centres.
The Eurozone economy is growing and the uncertainties that marked previous years are decreasing. On a per capita basis, GDP is actually growing more rapidly than in the US. Germany, Spain and The Netherlands are the highest growth countries. France is rebounding and Italy is starting to show signs of
Europe is helped by low inflation and low interest rates that are driving up consumption and exports due to a cheaper Euro.
In Switzerland, there are finally signs of recovery in the luxury watch industry: exports rose throughout 2017, with China being the number one importer. There are positive expectations for growth in the
luxury watches industry, as millennials appear to favour luxury mechanical watches rather than digital watches.
Luxury good sales dominated by their top three players, Richemont, Swatch, and Rolex.
Japan is a top market for luxury growth and the economy seems to be accelerating, owing to easy monetary policy and negative interest rates that favour consumption. Exports for Japanese goods have increased over the past couple of years and there is rising consumer confidence and purchasing power of the younger generations.
Growth in the Middle East in 2017 was almost flat due to the high level of economic uncertainty. Geopolitical tensions, conflicts, and shrinking oil prices were the main factors putting the stability of the whole area at risk, but rising oil prices now should help stimulate the oil based economy and drive up spending.
The Middle East represents a big opportunity for luxury brands. Luxury malls in Abu Dhabi and Dubai have helped put these cities on the map for the industry, and the United Arab Emirates as a whole continue to enjoy strong growth. Well-established big-name brands perform well in the region, and tourism is a major driver of sales in Dubai. Further growth is expected overall.
The Middle East has one of the largest young populations in the world and millennials in the Middle East are richer than the average and their willingness to buy is stronger.
Meanwhile, Africa has the potential to be the breakout star in the coming years.
One of the world’s fastest-growing luxury markets in the world, Russian luxury goods and general economy seems to be on the path to recovery.
Strict measures by the Indian government in 2016, such as demonetisation, an excise duty on gold and diamond jewellery, and the tax on luxury goods to curb ‘black money’, have significantly affected luxury good sales in the country. In India the luxury goods sector is still in the early stages of development, with a slow but constant growth and presenting many opportunities for investing companies.
Mexico is the largest luxury goods market in Latin America, followed by Brazil. Despite challenging economic circumstances, the consumption of luxury goods is expected to grow in Mexico over
the next few years, thanks mainly to the rising numbers of millionaires living in the country and to more affluent middle income consumers.
Because of political and economic crises, Brazilian consumers adopted a conservative attitude, preferring in general to cut their purchases of luxury items and expensive goods.
Brazil continues to be an important market for luxury goods as is not yet a mature market, there is still a lot of potential for growth.
The multiple luxury goods sector
– have by far the largest average size among the Top 100.
– include three Top 10 companies, LVMH, Richemont and Kering
– Multiple luxury goods companies are those with substantial sales in more than one of the luxury goods product sectors.
The group consists predominantly of European multinationals;
– with three companies based in France (LVMH, Kering and Hermès)
– three in Italy (Prada, Salvatore Ferragamo and Tod’s)
– two in the UK (Burberry and Michael Kors)
– two in the US (Coach and Cole Haan) and
– one in Switzerland (Richemont )
Nearly all multiple luxury goods companies are public companies, using investment to drive their growth. This is because most of the largest companies have achieved their scale by expanding into a range of luxury goods categories.
Clothing and footwear sector
This product sector had the largest number of companies in the Top 100 (38 companies), but their share of total luxury goods sales was only 19.5 per cent.
The top three companies, Ralph Lauren, PVH Corp. and Hugo Boss, accounted for 38.5 per cent of total sales in this sector.
Bags and accessories (including eyewear)
The nine companies in this sector are dominated by the biggest three: eyewear companies Luxottica Group and Safilo Group and Kate Spade, which together accounted for 82.3 per cent of sales in the bag and accessories sector.
Cosmetics and fragrances
Top three, Estée Lauder, L’Oréal Luxe and Shiseido, accounted for 70 per cent of total sales by companies in this product sector. Travel retail continues to be an important source of growth
for the largest companies in the sector
Jewellery and watches
Three companies had luxury goods sales in excess of US$5 billion – Swatch Group, Chow Tai Fook and Rolex – and together they account for 35.3 per cent of the total for this product group.
Sources: Global powers of luxury goods 2018 Deloitte report