The latest research report shows that although the global economy has been in a continuous downturn due to the impact of the new crown epidemic, thanks to factors such as changes in the preferences of younger consumers, the global luxury consumer market is "going against the trend," and the industry growth rate in 2022 will hit the fastest in history.
According to a study by Bain & Company, a consulting agency commissioned by the Italian High-end Product Manufacturers Federation, the global luxury goods market will grow by 21% year-on-year in 2022, with a market value of about 1.4 trillion euros. Among them, after experiencing a V-shaped rebound in 2021, the private luxury market segment will further explode in 2022, with a growth rate expected to reach 22%.
The report shows that despite the deterioration of global macroeconomic indicators, European and American consumers are affected by inflation, and the cost of living pressure is increasing. The consumer goods market will perform strongly in 2022, and about 95% of brands will achieve positive growth.
Claudia Dalpizio, partner at Bain & Company and head of Bain's global luxury and fashion practice, said, "The new wave of the luxury market will evolve through disruption, adapt amidst uncertainty, and develop new trends."
According to the analysis, compared with the international financial crisis in 2009, the current luxury goods market is more flexible, and the intergenerational change of consumer groups is the main driving factor.
"Millennials" and "Generation Z" led luxury consumption during the epidemic.
The data shows that the growth of luxury consumption in 2022 will mainly come from the "Millennials" and "Generation Z" (also known as the "Internet Generation," and "Second Generation"), who were born in the 1980s to the mid-1990s. "Digital media natives" usually refer to the generation born between 1995 and 2009. They have been seamlessly connected to the Internet age since they were born and are greatly influenced by smart phone products, instant messaging devices, and digital technology. Moreover, by 2030, the growth rate of the consumer groups of "Generation Z" and "Generation Alpha" (born between 2010 and 2020) will be three times that of other generations, accounting for one-third of the total market.
According to the Bain report, this is partly due to the fact that new consumer groups tend to get in touch with luxury goods earlier: in terms of the age of purchasing luxury goods for the first time, the "millennial generation" is about 18 to 20 years old, and the "generation Z" is about 3 to 5 years earlier, and as early as 15 years old, the "Alpha generation" will also show a similar trend. Small handbags and "post-street" trendy clothing are favored by these younger and more diverse consumer groups.
From the perspective of product categories, all categories of luxury goods have recovered to at least the level before the epidemic in 2019, among which hard luxury jewelry and leather accessories rebounded most prominently after the epidemic.
It is worth pointing out that the fusion of "street style" represented by neutrality, casual accessories, environmental protection, and sports style with emerging technologies and fabrics, as well as the beneficial attempt brought by the collision of art and luxury goods, has won the widespread love of the new generation of consumers. Quality, beauty, and fashion are the main considerations for young consumers when purchasing products. For example, luxury is accelerating its fusion with art, redefining handcrafted work through imagination and symbolic power.
From the perspective of market classification, Europe and the United States are traditionally strong markets for luxury goods, and their performance is still strong: the sales of luxury goods in the United States are expected to reach 113 billion euros in 2022, an increase of 25% over 2019; Europe is the second largest market in the world, benefiting from the strong recovery of the tourism industry, luxury sales in Europe are expected to reach 94 billion euros in 2022.
In addition, emerging markets such as India, Southeast Asia, and South Korea performed particularly well. For example, India's growing appetite for luxury goods among indigenous consumers has given the region great potential. The report predicts that by 2030, the valuation of the Indian luxury consumer market will increase by 3.5 times on a current basis.
The report also mentioned that the expansion of the customer base and the operation of brands through social media have made the luxury market resilient to the economic downturn. For example, in 2022, the luxury market is expected to have 400 million consumers, and on this basis, it will reach 500 million in 2030.
The luxury market is poised for long-term prosperity.
Analysts believe that even considering the current highly uncertain economic situation, the global luxury goods market is still expected to achieve strong growth in 2023, and this growth trend may continue until 2030, when the Chinese market will be a strong driving factor.
Data shows that in 2021, China's luxury goods market will grow by 18% year-on-year, with a total consumption of US$146.5 billion, showing a significant return on consumption. Moreover, the total market size driven by high-quality consumption exceeds 10 trillion yuan, contributing more than 70% of corporate profits to less than a quarter of China's total retail sales of consumer goods.
The huge consumption potential has made internationally renowned luxury goods giants settle in China. For example, the French Kering Group is expanding its stores in China to speed up the digitalization process; the global luxury goods giant LVMH Group announced that it will establish a tourism retail supply chain center for perfume and cosmetics in China in Haikou, Hainan, and is optimistic about the opening and development prospects of the Hainan Free Trade Port.
The Bain report pointed out that although the sales performance of China's luxury goods market in 2022 will be lower than that in 2021 due to the impact of the new crown epidemic, in the long run, comprehensive factors such as the increasingly affluent middle class, the growth of new generations, and the development of third- and fourth-tier cities will still affect the market. They will promote China's growth into the largest luxury consumer market.
The report mentioned that "the global macroeconomic situation will further widen the gap between the rich and the poor, and the middle class will continue to be under pressure", but China's middle class will be an exception because the common prosperity policy is expected to boost consumption. In addition, compared with the design of home furnishing, the personal luxury goods market will show a trend of faster development.
However, the Bain report also pointed out that rising energy prices, continued inflationary pressures, scarcity of bulk commodities, geopolitical conflicts, and the declining purchasing power of some consumer groups will put pressure on the future performance of the luxury goods market.
Under the pressure of high inflation and costs, the continuous investment of luxury brand companies will cause their profitability to decline slightly in 2022.
"Luxury brands need to use their cultural avant-garde status to overcome future challenges." Federica Levado, a partner at Bain & Company, believes that innovation, technology, data, and even investment in the future are crucial to luxury brands.