As Brexit Confusion Continues to Grow, China Luxury Sales Sky Rocket

In a chaotic geopolitical context punctuated by Brexit and a brewing global trade war it appears the luxury market just keeps chugging along. In their latest annual review of the luxury market released last month, Bain & Company and Altagamma offer some fascinating insights about the overall industry and the trends we should be paying attention to over the next few years.

Let’s start with the top line numbers: luxury sales are expected to grow globally by 4-6% in 2019 following a 6% increase in 2018. Sales growth in China continues at a torrid pace and is expected to grow by 20% this year. Growth prospects in North America and Europe are less promising with an estimated at 2-4% and 1-3% respectively.

China currently accounts for a full third of global sales and by 2025, they estimate it will account for almost half. That figure is both mind-blowing and exciting – if we were to get anywhere close to that there’s no doubt we’d be looking at a radically different market terrain for companies that have been operating in basically the same way for over a century.

Customers line up outside a luxury shop in Nanjing, Jiangsu province Photo courtesy: Visual China

So how is the market sustaining growth in an uncertain geopolitical and trade environment?

Their study highlights two factors that we’ve discussed extensively here at PurseBopprice harmonization and tourist spending. Price harmonization refers to the practice of using the same pricing structure for goods across markets. The report argues that recent attempts to bring prices in Asia, particularly China, in line with prices in Europe and North America, has resulted in significant sales growth inside the domestic Asian markets. And even though this could imply less spending by Asian tourists abroad, the Euro continues to remain relatively weak and will likely be so until Brexit is resolved. This should allow the European luxury market some breathing room over the rest of 2019.

Luxury shopping in Milan Photo courtesy: PixelFormula

What are the trends we should be looking for in the near to medium term? The report highlights a number of interesting possibilities:

  1. The rise of Generation Z (born mid 1990s-early 2000s) in China 
  2. A shift in consumption practices towards bag rental services and the second-hand market 
  3. Sustainability and social responsibility (think the shift away from real furs) 
  4. The impact of digital technology
  5. The rise of new and disruptive luxury brands that will keep the traditional powerhouses on their toes (think Jacquemus)

Up-and-coming fashion brands like Jacquemus may be set to outshine industry veterans Photo courtesy: @kimkardashian

We will continue to monitor all of these potential trends as well as any that arise, but we’re particularly interested in #2 and #5. In our own community here at PurseBop we’ve seen a significant increase in the willingness of consumers to use rental services or enter the second-hand market, but we’ll have to see if this turns out to be a flash in the pan or a long-term sustainable trend.

The second-hand luxury fashion market continues to grow Photo courtesy: What Goes Around Comes Around

In today’s fragmented media world the dominant players need to invest more and more to simply run in place. We’ve seen luxury startups like Jacquemus come out of nowhere to challenge major competitors, while others like Rihanna are starting to capitalize on their global fashion clout and launching their own brands instead of simply serving as the face of centuries old European fashion houses.

Rihanna recently became the first black women to run an LVMH brand after partnering with the luxury goods conglomerate to launch her Fenty fashion brand Photo courtesy: Philippe Blet/REX

This is bound to continue, but it doesn’t mean the Gucci’s, Chanel’s and Hermes’s of the world are going to fall by the wayside. They’re not the incumbents by accident. We think they’ll continue to dominate, but the novel strategies they come up with to do so will be fascinating to watch.

Read related articles:

Why Western Luxury Retailers Should Still be Looking East
Brexit… And Bags 
Part 2: Buying Bags After Brexit
Part 3: Brexit and the Asian Market

What are your thoughts on the state of the luxury fashion marketplace? Let us know.

Love, PurseBop

Published: July 31st, 2019
Updated: July 31st, 2019

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