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Leibish & Co

Wednesday, May 4, 2011

Global Luxury Sales Show Renewed Worldwide Strength

Strength in markets around the world is fueling an increase in luxury sales, which are projected to grow worldwide by 8 percent to €185 billion ($276 billion) in 2011, according to a survey released by a global luxury goods consultancy Tuesday in Milan.

The growth of luxury sales in China has been getting most attention lately, but this current rate of growth is also being buoyed by strong first-quarter momentum in the U.S. and Europe, according to the “Spring 2011 Update: Luxury Goods Worldwide Market Study,” by Bain & Company. In fact, the U.S. remains the world’s largest luxury goods market.

The Bain study also estimates that luxury sales will grow in the next three years to €214 billion ($318 billion) to €221 billion ($329 billion) and that the demographics are changing, in terms of age, technical knowhow and attitude.

The report also notes that despite the improvements in U.S. and Europe, the biggest growth rates in luxury sales remain in emerging markets, such as Russia, Brazil, the Middle East and, of course, China.

After declining by €17 billion ($25.3 billion) over the course of 2008 and 2009, a strong 2010 closed with a 14 percent increase in luxury sales, versus 2009—bringing the luxury goods market to €172 billion ($256.6 billion), surpassing its prior peak of €170 billion ($253.7 billion) in 2007, according to the annual survey.

Bain said in its report that department stores and direct-owned luxury stores saw continued double digit sales increases in February and March versus 2010, selling out on much of their Spring/Summer 2011 inventory. Stores have placed robust orders for the Fall/Winter 2012 seasons and have restocked sold-out inventory levels. Among the high-growth categories are accessories, leather goods, jewelry and watches. Bain said retailers expressed a high level of confidence that consumers will keep making purchases with the same vigor that preceded the global financial crisis.

“Luxury has made a brilliant return to the retail stage, but the script has been re-written,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “More demanding customers, generational shifts, new loyalty rules, an increasingly integrated offline and digital customer experience and the continued growth of China and other fast-growing markets are transforming the luxury industry.”

Bain forecasts that sales in the Americas for 2011 will grow by 8 percent, to nearly €52 billion ($77.5 billion). China will see 25 percent year-over-year growth this year, putting Greater China (including Hong Kong, Macao and Taiwan) in a strong position to exceed sales in Japan for the first time. Growth in Europe will reach 7 percent in 2011 and Japan will see a decline of 5 percent, due, in part to structural decline and also the impact of the March 11 earthquake and tsunami. However, the study estimates that Japan’s luxury sales will stabilize starting in the third quarter of 2011, as consumption recovers and as reconstruction drives GDP growth. In fact, even as Tokyo stores reopened in the two weeks after the earthquake, brands reported a quick resumption of sales to expected levels, with little impact in southern cities such as Osaka.

The study predicts that growth in emerging markets will remain the focus of luxury manufacturers for the next two to three years. Lifestyle changes have driven a return of luxury goods sales in Russia (5 to 10 percent annual growth). New store openings will fuel growth in the Middle East (10 percent to 12 percent), while Brazil will see heavy investment by international brands (10 percent to 15 percent). China’s fast-growing wealth will fuel both same store sales growth and new store openings.

“The emerging market consumer continues to create the most exciting challenges for our industry,” said Santo Versace, chairman of Fondazione Altagamma, an Italian luxury goods industry trade association, which provided much of the data for the study. “Even as we adjust to the maturing of the North American and European markets, consumers in countries like China are becoming more demanding and more sophisticated in their luxury tastes.”

In its report, Bain mentions three ways that those in luxury industry can better take advantage of the growing and changing luxury market:

* Deep focus on emerging markets—penetration; route-to-market; a tailored value proposition

* Adaptation to the continuing generational shift—baby-boomers retiring; Generation Z (always connected)

* Continuous enhancement of the customer experience—increase loyalty and satisfaction; integrated online and offline experiences; unrelenting service

“Emerging markets are doing more than generating revenues,” said Bain’s D’Arpizio. “New consumers are also forcing luxury brands to become much more nimble in the merchandise selection and customer experience they offer to increasingly diverse consumers.”

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