MILAN — Despite all the uncertainties, the global luxury goods industry continues to grow and is expected to further expand in 2023 and until 2030.
According to the latest Bain & Company Luxury Study in collaboration with Fondazione Altagamma, presented in Milan on Tuesday, the global luxury goods industry overall is projected to achieve a market value of around 1.4 trillion euros in sales in 2022, up 21 percent from the previous year.
In particular, the personal luxury goods industry is poised to see revenues climb 22 percent to 353 billion euros in 2022 compared to 2021.
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The performance of the last quarter of this year will largely depend on the progressive lifting of COVID-19 restrictions in China, and the consumer confidence of European and American luxury consumers as inflation rises.
The personal luxury market is forecast to see a growth of at least 3 to 8 percent next year, even given a downturn in global economic conditions, and by 2030 the market value is expected to climb to around 550 billion to 570 billion euros, a rise of 60 percent or more compared to 2022.
The luxury market is set to be more resilient to recession next year than during the 2009 global financial crisis.
“In the second half of 2008, consumer confidence in luxury was down and there was a dose of luxury shaming, while the customer attitude now is different, and sustained almost everywhere, with big tickets and an elevated choice of product,” said Federica Levato, partner at Bain & Company, leader of its EMEA Luxury Goods and Fashion practice, and coauthor of the report.
Also, Levato pointed to a larger and more global customer base, as the Chinese market was still small in 2008 and 2009.
She also noted that companies, having gone through COVID-19, are more prepared to directly engage customers and continue to invest in activations and marketing, in digital and physical technologies, even in the face of high inflation and rising costs, which lead their profitability to slightly decrease on the back of growing sales, following an unprecedented increase in 2021.
“The nouvelle vague — the new wave — of the luxury goods market will demand evolution amid disruption, adaptation amid uncertainty and an expansion of creativity in all of the basics — all while new trends and concepts develop”, said Claudia D’Arpizio, a Bain & Company partner, leader of Bain’s Global Luxury Goods and Fashion practice, and the lead author of the study.
In coming years, the spending of Gen Z and Gen Alpha is set to grow some three times faster than for other generations until 2030, making up a third of the market. This is, in part, driven by a more precocious attitude toward luxury, with Gen Z consumers starting to buy luxury items some three to five years earlier than Millennials, and Gen Alpha expected to behave in a similar way.
Levato said companies will have to now deal with new priorities: ESG, creativity chain, technology and data. “These domains are rich with opportunities for luxury brands — but investments for future growth are crucial.”
The study also points to other key trends, such as a return to physical retail, which was “not unexpected,” Levato said. “We factored this in in previous estimates, believing that when tourism restarted, it would be normal to go back to stores.”
The U.S. and Europe have been showing strength, but there are also new markets that are showing potential, such as South East Asia and South Korea. India and emerging South East Asian and African countries have a significant potential, although they need to improve their infrastructure, the study stated.
China remains crucial to the luxury market, but is still performing below 2021 figures, due to the ongoing restrictions, and is expected to recover between the first and second half of 2023.
The luxury market’s consumer base is broadening with some 400 million consumers in 2022 forecast to expand to 500 million by 2030. The higher and top end of the luxury market have been expanding and accounted for some 40 percent of market value in 2022 compared with 35 percent in 2021.
Levato said all luxury categories have now recovered to 2019 levels or better, with hard luxury, leather goods and apparel leading the resurgence following the pandemic.
“There is a shift to the ‘post-streetwear’ era, which maintains some elements such as gender fluidity, occasion-less apparel, inclusivity and sports-driven inspiration, but goes beyond its style codes through new and enhanced techniques, materials and functionalities, such as sartorial and casual integration, high tech and sustainable fabrics,” concluded Levato.
Matteo Lunelli, president of Altagamma, characterized 2022 as “a record year beyond expectations” for the luxury sector, and touted the “extraordinary performance of Italian brands” and the level of excellence of the country’s manufacturing chain.
Speaking after the morning event, Lunelli said he was “extremely pleased” with the speech delivered by Adolfo Urso. He is the newly appointed minister of what used to be called economic development and has been renamed ministry of the enterprises and of Made in Italy under Prime Minister Giorgia Meloni.
“He tackled issues that are relevant for us, such as digitalization, sustainability and training,” Lunelli said.
Urso also spoke of the importance of intellectual property, saying that he believes “it is right and fundamental that the Patent Court is based in Milan, the capital of Italian manufacturing.”
Made in Italy is synonymous with excellence and quality, Urso observed, and the change in the name of the ministry is not only a lexical one, but “a clear indication of the new mission of our government, to promote, protect and emphasize our brand in the world. The Made in Italy represented by Altagamma is the jewel in the crown of our manufacturing industry and has succeeded in maintaining its role as a protagonist in a very difficult context, significantly contributing to the country’s GDP growth.”
Seeing future potential, he said the ministry is aiming at working with different associations to support and promote the industry around the world.
Urso “recognizes how the luxury industry is a key engine of our economy and that it benefits many other sectors,” Lunelli said. As a former deputy minister of productive activities with responsibility for foreign trade for several years, Urso “has traveled the world on many missions and understands the problems of our sector,” Lunelli continued.
In a conversation with Francesca Bellettini, president and chief executive officer of Yves Saint Laurent, Altagamma general director Stefania Lazzaroni commented on the growth of the Kering-owned brand, which reported sales of 2.4 billion euros in 2021, up from 1.7 billion euros in 2020 — a jump from 400 million euros in 2013 when the executive joined the company.
Asked about the recipe behind this upward trajectory, Bellettini said there is none, but provided some background information on the changes she initiated, while also adding that profitability at Saint Laurent has also improved. “To speak of sales without profit growth is sterile,” she said. (Operating profit was close to 30 percent last year.)
“I believe in business units by categories and in giving more autonomy to the markets,” Bellettini said. When she joined, there were only retail directors leading regional markets, not presidents and they did not report directly to the CEO. “This did not work for me. Now they are in charge of all functions from strategies to communication. I could be traveling all the time, but I would never be able to understand that local client better,” said Bellettini, who was on her way to Tokyo later that day. Relying on the local teams “served us very well during the pandemic, as we already had a strong relationship with local customers,” she explained, adding that the brand also benefited from Kering’s digital platform.
While a believer in the wholesale distribution channel, “if our values are shared,” Bellettini also expanded Saint Laurent’s retail channel, as she found less than 100 stores around the world when she joined.
With Bain & Company, Bellettini initially defined plans to reach sales of 3 billion euros, “which seemed absurd at the time, but one must believe” in one’s goals, she underscored. Now, a new plan has already been mapped out to reach sales of 5 billion euros, she said, although this growth must be “consistent with our values.”
She touted production in Italy, while she said there are also some brand suppliers in France, depending on the expertise needed. In February 2023, a new plant covering more than 300,000 square feet will open in Scandicci, Tuscany, as reported. “We believe in internalizing research and development, and working on production with our partners to achieve the volumes that are necessary,” Bellettini said.
A new, more expansive shoe plant is also expected to open in 2024.
She never thought twice about joining the company when [Kering chairman and CEO François-Henri Pinault] asked her to take on her current role — “even though I didn’t speak French,” she admitted — and was grateful that the success of the brand “has been welcomed” in France, where “everyone loves Saint Laurent, it’s the brand of the people, he was the first who created ready-to-wear and I share the responsibility of this legacy with [creative director] Anthony [Vaccarello].”
Lazzaroni presented the Altagamma Consensus for 2023, which sees all markets growing: Europe, North America and the Rest of the World each by 5 percent; Latin America and Japan, each up 6 percent; the Middle East by 7 percent and Asia by 9 percent. “For China and Asia, estimates are more difficult in light of the possible restrictions to curb COVID-19,” Lazzaroni said. “China in the long-term remains the largest luxury market, led by the wealth of the middle class, by the new generations, and the development of new poles.”
In terms of clusters, the Chinese are forecasted to grow 10 percent, followed by the Asia Pacific, up 8 percent; North America up 5 percent; Japan up 4.5 percent, and Europe by 4 percent.
Earnings before interest, taxes, depreciation and amortization is forecasted to grow 6 percent, driven by an improved product mix and an increase in prices, and limited by the difficulties in keeping the cost of energy and raw materials under control, Lazzaroni said.
Leather goods are expected to grow 8.5 percent and shoes by 7 percent. Apparel is seen gaining 6 percent and beauty 5.5 percent.
Hard luxury, and in particular jewelry, is forecasted to grow 8 percent, seen as an investment, as are watches, expected to gain 5 percent.
Pomellato CEO Sabina Belli said the strength of the jewelry category can also be traced to the fact that “jewels are symbols that transcend value,” and “as long as there’s love and emotions,” there is no risk of seeing jewels diminish their relevance. Also, women have increased their self-purchases, and they have an increasing spending power, noted Belli.
Sustainability was a recurring topic on stage and Lunelli underscored that more than half of the speakers on stage on Tuesday were women, “extraordinary women, of great talent.”