Luxury fashion is poised for growth, and both the Generation Z cohort and Chinese consumers in particular, will drive the bulk of that uptick.
By 2025, the luxury market is projected to grow to between 320 billion euros ($354.96 billion) and 365 billion euros ($404.88 billion). At the end of 2018, Bain pegged the global luxury market at 260 billion euros ($288.05 billion). This year, that growth is expected to be between 271 to 276 billion euros ($300.23 to $305.77 billion). That mean’s the sector should see growth between 18.2 percent to 32.4 percent by 2025.
Together, millennials and Gen Z will fuel 130 percent of the future growth of the luxury market, with Chinese consumers accounting for 45 percent of the global market, a Bain & Co. study of the sector found.
According to Claudia D’Arpizio and Federica Levato, Bain’s luxury goods partners in Milan who co-authored the study, the Chinese Gen Z cohort will be the “segment to watch” when it comes to luxury, thanks to the group’s significant spending force, tendency to impulse buy, and its proud and empowered attitude. Half of the luxury purchases made by Chinese consumers will occur in Mainland China.
In Mainland China, consumer-centered strategies and governmental initiatives continue to favor local purchases. According to the report, cross-border luxury shopping is still on a declining trend, though D’Arpizio and Levato believe the younger generations’ willingness to buy will continue to sustain luxury spending in the region.
In other parts of Asia, Bain expects a continued positive growth trend in the region, except for in Hong Kong and Macau, mostly due to reduced tourist spending. Expanding disposable income in the middle class will fuel growth in Indonesia, the Philippines and Vietnam. South Korea should continue to see sustained growth, fueled by local consumers, while Japan will see a boost in travel retail due to the 2020 Tokyo Olympic games. The authors also noted that “Ikina-rich” is on the rise, a group of young tech entrepreneurs less interested in ostentatious luxury and more interested in experiences.
As for where luxury is headed in 2019—beyond China and the rest of Asia—Bain expects to see growth in the Americas, though Europe may falter. According to the report, a weakening macro-economic outlook in Europe could have a possible impact on local consumers’ confidence surrounding luxury spending.
The Americas should see the U.S. able to maintain positive growth, fueled by full-price channels with strong domestic consumption and helped by revamped tourist flows from Mexico and Brazil. Mexico, according to the report’s authors, is “on the rise [while Canada is] still on a positive trend, thanks to a favorable exchange rate boosting local consumption.” For the off-price channel, however, the sector could suffer from lower foot traffic due to a faltering aspirational customer.
In other key global luxury markets, uncertainties across the Middle East will hamper growth there, and growth in Australia is slowing due, in part, to foreign purchase restrictions.
Beyond markets, Bain said the luxury sector will continue to feel the effects on shopping’s—and consumption’s—shift.
The rise of digital, according to the report, will lead to store network consolidation, further contributing to a “radical change in physical stores’ role.” The trend toward access over ownership will also continue to play out in the sector, fueling the rise of rentals. And, as D’Arpizio and Levato noted, the acceleration in the second-hand market will take place on a global scale, led largely by a new vision for the environment, human labor and animal welfare. That, in turn, will make sustainability, social responsibility and circular fashion the new mantra for this growing consumer group.
By category, the report found that leather accessories, like handbags, as well as jewelry, maintained a positive growth momentum in 2019’s first quarter, followed by solid growth in beauty, particularly in skin care and makeup. Apparel sales were still sluggish, although the men’s wear market was showing signs of a possible “re-start.”