Luxury-goods sales are projected to fall by 20% to 35% in 2020 as a result of the coronavirus pandemic, says Bain & Company, as the industry reels from retail and tourism shutdowns in all key markets. The consultancy had previously forecast a drop of 25% to 35% year-on-year for the first quarter, and now says that the global personal luxury-goods market contracted by an estimated 25% during the period.
All product categories have witnessed declines, with watches seeing the biggest drop as a lack of online sales platforms failed to offset the shutdown of physical retail. The accessories category has shown the most resilience.
However, the report, Bain & Company Luxury Study 2020 Spring Update released with Italian luxury goods manufacturers’ association Fondazione Altagamma, points to bright spots: China and online. With China leading the way toward a recovery, Bain forecasts that Chinese consumers will account for nearly 50% of the luxury market by 2025. Sales in mainland China will account for 28% of the market by this date, up from 11% in 2019.
While the online channel saw double-digit growth in 2019, luxury purchases on the internet have increased during the crisis. Online is forecast to account for as much as 30% of the market by 2025. This, says Bain, goes hand-in-hand with Gen Y and Gen Z becoming the majority of the luxury market.
Although a recovery in luxury is expected, the market-research firm cautions that it will take time, the market will be profoundly transformed and the industry will need to adapt.
“The coronavirus crisis will force the industry to think more creatively and innovate even faster to meet a host of new consumer demands and channel constraints,” says Claudia D’Arpizio, a Bain & Company partner and lead author of the study. “Safety in store will be mandatory, paired with the magic of the luxury experience: creative ways to attract customers to store, or to get the product to the customer, will make the difference,” adds report co-author and Bain & Company partner Federica Levato. “The speed of future market growth will depend on luxury players’ strategic responses to the current crisis and their ability to transform the industry on behalf of the customer,” she noted.
According to Bain, every aspect of the luxury market—from creation, distribution and supply chain to interaction with the end consumer—will need to be re-imagined for this changed world. And with this in mind, Bain does not see a recovery to 2019 levels before 2022 or 2023. Growth will resume gradually from then on, with the market reaching an estimated €320-330bn by 2025.