The global luxury goods market has increased by 6% per year since the mid-1990s, and the industry is now worth an estimated $308 billion annually. However, experts warn that the current recession will have a huge impact on the industry, especially in the Americas and Europe.
China: the fastest-growing market for luxury goods
The luxury goods market has seen a rapid growth in the last few decades. In 1996, the global market was worth $83 billion, and this has increased to over $308 billion in 2019. This is an average increase of 6% per year. According to Forbes, Chinese consumers accounted for 90% of the growth in the personal luxury goods market in 2019, a market which includes accessories, beauty products, apparel and more. The Chinese market generated $21 billion in sales, or 35% of global luxury spending in 2019.
Historically, America and Europe have accounted for the majority of luxury goods sales. Last year, American consumers generated 22% of the global luxury goods sales, while Europe generated only 17%. This is a sharp decrease from previous years. China is one of the fastest-growing economies in the world, and young Chinese consumers are spending $6,000 on luxury goods per person on average.
Analytics predict that Chinese consumers will account for 50% of the global luxury goods market in 2025 – which would be a 15% increase in only five years.
Global recession and new challenges
Although the global luxury goods market has grown nearly every year over the last two decades, experts warn of declining sales numbers going forward. The lockdowns and current recession have made a major impact on the industry, and consumers are hesitant to spend money on luxury items such as handbags or accessories. No economy is unaffected to the recession, but China is expected to be the least impacted by the crisis.
According to Bain & Company, the luxury market will face a difficult year ahead. The company estimates that the global market could contract between 20-35%, depending on various factors. The most optimistic scenario estimates a contraction of -15% to -18% in 2020, while the worst-case scenario shows a decline of between -30% and -35%, which would be a decline of up to $107 billion in sales. Bain & Company anticipates that the market will not recover to 2019 levels until 2022 or 2023.
The future growth of the luxury goods market depends on how quickly countries can recover from the current global crisis. Travel retail has been heavily affected by the world-wide travel bans, but consumers are still buying luxury items like watches from the Royal Oak Collection by Audemars Piguet on the internet. The luxury brands that manage to adapt now will be the ones to see the fastest recovery.
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