post # 2
This is Day two (of three) blogging about the 2012 Bain global study of personal luxury goods. Yesterday I wrote about Bain’s analysis of the industry’s growth prospects. The consulting company’s general picture seems to be that after a post-Great Recession surge in luxury goods spending the industry is settling back toward trend growth.
In the Worldwide Study, Bain has pencilled in 4% – 6% annual revenue expansion as being “trend.”. My sense, however, is these numbers are there more as prudent (read: low-ball) placeholders than the product of hard core analysis.
That was yesterday. Today I’m going to write about the major trends Bain sees in the luxury goods market. They are:
According to Bain, 40% of the total money spent by buyers outside their home country! I knew that this phenomenon was big, but I didn’t realize it was so large.
Why not spend at home?
—price Prices are cheaper in the EU than anyplace else. This is partly because luxury goods makers set prices higher in Asia and partly because of government duties imposed on foreign luxury goods imports. Outlet shopping may also not be available in the home country (more below).
—selection Two-thirds of worldwide luxury goods distribution is through third parties like department stores, which may focus on only a small number of items. In some cases (think: China) there may not be stores nearby
—anonymity Buyers may prefer to make purchases that don’t advertise their affluence to their friends and neighbors
–authenticity Buying from a luxury firm’s retail store gives greater assurance that the merchandise isn’t counterfeit
—vacation atmosphere buyers may be less careful about spending when abroad.
How does Bain know this? Traditionally, the information comes from credit cards, although in today’s world more progressive companies will be using “big data.” If so, they’re probably not telling anyone, though.
the geographical spending mismatch
Chinese citizens do 25% of global luxury goods spending; China accounts for 7% of worldwide sales
Europeans do 24% of global spending; Europe accounts for 35% of worldwide sales
Americans do 20% of global spending; the US accounts for 31% of worldwide sales
Japanese do 14% of global spending; Japan accounts for 9% of worldwide sales
Everyone else does 17% of global spending, everywhere else accounts for 18% of worldwide sales.
In the aggregate this is an East/West phenomenon. Yes, Americans do a little bit of luxury shopping in Europe and Europeans in the US. But Japanese and Chinese citizens do the majority of their personal luxury goods buying abroad.
–China accounts for 25% of the global luxury goods market. That’s more than any other country. And it’s up from basically nothing 12 years ago.
–accessories, not apparel Accessories, typified by leather goods and shoes, are now the largest segment of the luxury goods market, comprising 27% of total sales vs. 26% for the #2 category, apparel. They’re also growing faster than apparel. Reasons: lower prices, greater recognizability, faster innovation
–men, not women… Fifteen years ago, men made up a third of the luxury goods market. Today, that’s up to 41%. The impetus for this change is the emergence of younger male consumers in China. Now luxury brands are beginning to cultivate males in the US and Europe as well, where men hav e traditionally been second-class citizen, on the view that men “normally” buy less than women–and are much more highly business cycle sensitive customers.
–…except maybe for China, where Bain notes, for the first time I’m aware, that women business owners, “power women,” are becoming a significant force in luxury goods consumption
–off-price Outlet shopping, long a staple in the US (59% of global off-price sales this year) , has arrived in Europe–and is being rapidly developed from a very low base in Asia. Bain reports growth in luxury outlet sales from Chinese customers in Europe of up to 100%+.
The category as a whole will likely grow at a 30% clip in 2012, although it will only account for about €13 billion in total sales.
–online This market, which is still tiny at an estimated €7 billion in sales this year, is growing at about a 25% annual rate. It’s 2/3 full price, 1/3 off-price, with off-price growing faster. Private sales, flash sales and sites for men are the hottest sub-categories.
That’s it for today. Tomorrow, structural features of the personal luxury goods market.