Study: Luxury market to start stabilizing in 3Q

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Study: Luxury market to start stabilizing in 3Q

Jewelry, watch sales will decline by 12 percent in 1Q, 2Q

April 20, 2009

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New York--The luxury goods market faces a 15-20 percent decline during the first two quarters of 2009, decreasing from $219.81 billion in 2008 to about $197.82 billion, according to the latest study from global business consulting firm Bain and Co.

The study, a semi-annual update to Bain's "Luxury Goods Worldwide Market" study, seventh edition, also reveals that the global luxury market will begin stabilizing in the second half of the year, resulting in a net decline of 10 percent for 2009 overall.

"This year's declines are hitting both the top and bottom lines of luxury goods companies," said the study's author Claudia D'Arpizio, a Bain partner and luxury goods expert based in Milan. "Luxury shoppers are spending less, traveling less and feeling less confident. Luxury goods producers are also feeling the additional squeeze of intense pricing pressure and markdowns from retailers and higher-end department stores."

Bain estimates a 15 percent decline in luxury goods sales in the Americas and 10 percent declines in Europe and Japan, areas that account for more than 80 percent of worldwide sales.

Smaller luxury markets show more promise, according to Bain, with projected growth of 7 percent in China and 2 percent in the Middle East, but these gains will provide only a small offset against steep declines in major markets.

Among the major luxury product categories, apparel will be hit the hardest, declining by 15 percent. Jewelry and watches will decline by 12 percent, while leather goods, shoes and accessories will decline by 10 percent. Luxury cosmetics and fragrances will be the most resilient categories in 2009.

The study also reveals a trend among luxury shoppers to switch to lower-price-point items while still remaining loyal to top-of-mind brands.

"One of the biggest changes we've seen in consumers is that 'price' and 'luxury' are no longer synonymous," D'Arpizio said.

Other findings of the study include:

--Consumers who are newly entering the luxury market, called "accessible luxury" consumers, are purchasing items at the lower end of brands' product lines.
--The most affluent, or "absolute," luxury shoppers have begun to focus more on the intrinsic quality of materials and the durability of luxury items instead of on fashion content.
--Consumers who value the dream offered by luxury brands, called "aspirational" consumers, are increasingly motivated by service and in-store events as much as by merchandise.
--Consumers are gravitating to more discreet products, preferring understatement in what they buy and how they shop in luxury stores.
--Many shoppers across all luxury segments now wait for deeper discounts at the end of the season, or seek out discounts at department stores and outlets.

Bain's analysis also shows a long-term trend of continued growth in the number of luxury consumers in new emerging segments, including:

--Newly affluent consumers, especially working women.
--Men who are more willing to pamper themselves.
--Younger generations with new tastes and styles.

"Changing values and consumer habits are creating tremendous opportunities for brands to win new customers and strengthen their relationships with existing ones," D'Arpizio said. "While today's economic turbulence is requiring a hard look at costs, luxury goods producers would be wise to also keep an eye on the future."

Bain and Co., in cooperation with Altagamma, the flagship trade association for the Italian luxury goods industry, analyzed the market and financial performance of more than 200 of the world's leading luxury goods companies and brands for this study.

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