Consulting firm Bain issued the latest in its series of important studies on the global luxury goods industry last month. Thanks to Bain, I’ve just received a press copy of the study itself.
I’m going to write about it in two posts. Today I’ll cover Bain’s view of industry prospects for 2013. Tomorrow, I’ll write about longer-term structural changes underway for luxury goods.
2012 results
(It’s important to note that the study, conducted by well-known Bain analyst Claudia D’Arpizio, is done in cooperation with the Italian luxury goods trade association, Altagamma. This means the sales figures are presented in €. Also, the concept of luxury goods used has a strong traditional European emphasis.)
in € terms
In € terms 2012 was an above-trend sales year, one very close to being on par with 2011. In both period luxury goods revenues grew by just over 10%, in an industry whose long-term growth rate is closer to +5%-6%.
in constant currency
In constant currency terms, however, 2011 was a +13% year (meaning strength in the € understated how strong the worldwide luxury good business was). In contrast, 2012 was a +5% year in constant currency (meaning half the revenue rise came from € weakness).
the holiday season
Four factors characterized the key yearend holiday sales season in 2012:
–weaker than expected traffic in the US and Europe
–purchases tended to be for the buyer’s own use, rather than as gifts for others
–online sales, especially mobile, were very strong
–online sales were increasingly driven by special offers and by discounted shipping
2013 prospects…
1Q13 appears to have been a low point. Sales were up a mere 3% year-on-year in constant currency. € strength cut that in half in current currency terms.
Bain forecasts a 4%-5% full-year rise in €-denominated sales.
…by region
Japan: Sharp devaluation of the ¥ has had a strong negative effect on Japanese luxury goods consumption–driven by the resulting loss in wealth and purchasing power of Japanese citizens.
Bain expects luxury purchases by Japanese abroad–notably Hawaii and the EU–to be down by 40% yoy as foreign travel declines and because $- or €-denominated goods have become less affordable.
Bain estimates that an estimated 10% increase in domestic luxury goods purchases will offset some of the shortfall. But the overall effect will be about a 20% yoy contraction in luxury goods consumption by Japanese this year, a figure more or less in line with the fall in the Japanese currency.
In Bain’s view, continuing ¥ weakness will limit the luxury goods industry in Japan to +4%-6% growth in € terms in 2013.
China
Chinese spending on luxury goods grew by 20% in constant currency last year, and by 30% the year before. Bain is forecasting a relatively modest increase of +7% for 2013, however.
The main reason is change in policy by the newly installed central government. The new leadership in Beijing is discouraging conspicuous consumption by the ultra-wealthy, particularly those with family connections to high-level present or former Party officials (although Macau gambling doesn’t appear to be suffering). Perhaps more important, the administration has launched an anti-corruption campaign aimed at the widespread soliciting of “gifts” by officials from those seeking, say, business or construction permits. Some estimates I’ve heard are that such gifting has made up as much as 25% of the sales of certain luxury brands. Bain only mentions that sales of watches have been especially hurt.
No mention of a shift away from European to domestic Chinese luxury brands, but I think this is also part of the story.
Europe
Although it seems to me that Europe has passed its cyclical low point, and will gradually improve through 2013, the region will scarcely grow at all this year. As a result of continuing economic weakness, aspirational buyers of luxury goods continue to trade down. Japanese tourism has slowed dramatically. And Chinese visitors are purchasing less on their European trips, as renminbi weakness makes €-denominated goods look more expensive.
Bain pegs European luxury goods sales in 2013 at 0%-2% growth.
US
Bain has little to say–good or bad–about US luxury goods buying. It has penciled in growth of +5%-7% for this year.
the world
Asia ex China’s the best, at +7%-9% growth. China’s a close second. Europe’s the worst. Overall, Bain thinks worldwide luxury goods sales will advance by +4%-5% in 2013.
More tomorrow.