Covid-19 has been the catalyst for change for the luxury industry in 2020. The way people live, shop and what they value have changed.
For the first time since 2009, the personal luxury goods market contracted in 2020 reports Bain & Company in its latest study on luxury in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.
Due to Covid-19, the personal luxury goods industry declined by 23 percent to €217 billion. This is the largest drop since Bain began tracking the industry.
The overall luxury market – encompassing both luxury goods and experiences such as as fine art, luxury cars, private jets and yachts, fine wines & spirits and gourmet food – shrunk at a similar pace and now is estimated at approximately €1 trillion.
But everything is not bleak. Bain estimates that the luxury industry will recover by 2022-2023.
Local consumption and online sales are leading the recovery.
Luxury demands are growing in China In 2019, Chinese customers accounted for one-third of all the luxury spends in the world. In 2020, despite the pandemic Mainland China has been the only region globally to end the year on a positive note, growing 45 per cent to reach €44 billion.
Local consumption has roared ahead across all channels, categories, generations and price points, Bain reported.
The other parts of the world, especially Europe has borne the brunt of the global tourism collapse. Regional consumption fell 36 per cent to €57 billion.
The Americas saw a 27 per cent fall in the luxury market in 2020 to 62 billion euros. The Japanese luxury market fell 24 per cent to €8 billion. However, brands that sell products seen as long-term investments and higher resilience performed well.
The rest of Asia also struggled while the impact was mitigated in the Middle East due to shorter lockdowns and spending within the region.
Overall, the rest of the world contracted by 21 per cent to €9 billion.
Online sales double in 2020 Online sales of luxury goods have doubled from 12 per cent in 2019 to accounting for 23 per cent of the market in 2020. In the luxury market, online sales made up €49 billion in 2020, up from €33 billion in 2019.
Baine expects the digital space to become the leading channel for luxury purchases by 2025.
The report states that bricks-and-mortar store networks will decline in 2021. “Brands will need to adjust their footprints to the new map of luxury buying, evolve the store role and its ergonomics, and maximize the customer experience. The wave of transformation will not leave the wholesale distribution untouched: perimeter contraction, polarized performance and entry of new players will lead luxury brands to increase their control on the channel,” states the report.
The report also stated that younger generations – who are set to drive 180 percent of the growth in the market from 2019 to 2025 – place an unprecedented emphasis on tackling social and racial injustice. Going forward, brands will need to focus more on sustainability and environmental issues, diversity and inclusion.