Powerful luxury brands take control of the luxury market in 2021, leaving little room for anyone


Bain and Company and the Italian trade association Fondazione Altagamma release their 2021 study on the global luxury market.

Based on a preliminary assessment covering both sales in the luxury goods market and experiences in nine main categories, it indicates that total revenues will increase by 13% to 15% in the pandemic year 2020. to end at 1.14 trillion euros ($ 1.3 trillion).

However, the report also states that the total market will remain 9% to 11% below 2019 levels, largely due to a lack of experiences.

Luxury hospitality, fine dining and fine dining, fine arts, private jets and yachts will remain below 2019 levels, although up from 2020. Only luxury cruises are down by compared to 2019 and 2020.

On the other hand, luxury cars – the largest category with 551 billion euros ($ 626 billion) – will end the year at or slightly above 2019 levels. Only fine wines and spirits (77 or 88 billion euros) and high-end furniture and household items (45 or 51 billion euros) will exceed 2019 levels, up respectively by 12 to 14% and by 13. at 15%.

Personal luxury will creak by 2019

The report has the most ink for the personal luxury market, the second with 283 billion euros ($ 322 billion) in sales, up 29% from 2020 to end the year + 1% before 2019 .

Overall, the Americas (31% SOM) and China (21% share) will overtake 2019, up 12% and 3% respectively, but Europe (-10% with 25% share) and Japan (-9% with 7% share) stay underwater.

Described as the “core of the core” in the luxury market, personal luxury has “come back with a vengeance” after experiencing a V-shaped recovery.

Within the personal luxury segment, only shoes (23 or 26 billion euros), jewelry (22 or 25 billion euros) and leather accessories (62 or 70 billion euros) will exceed the 2019 results , up 5%, 3% and 4% respectively. .

Beauty (60 or 68 billion euros) and watches (40 or 45 billion euros) will remain stable and clothing (57 or 65 billion euros) will remain down -5% compared to 2019.

Despite the uneven recovery in personal luxury goods, it is expected to show a CAGR of between 6% and 8% and reach sales of 360-380 billion euros (409-432 billion dollars) by 2025.

That concludes the jaw-dropping report of the study of last year’s top luxury results, saying: “There has never been a year of performance rising to match 2021.”

And yet, beneath the early results are other findings that should give pause, particularly how the balance of power in the luxury market is now firmly in the hands of ‘power’ brands, like former Steve Sadove. CEO of Saks and currently a consultant. to Mastercard

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, describes them.

To the winner goes the booty

The “sudden recovery” Bain talks about only applies to brands of potency. Two percent market share is all small brands (

As the report states that “there is always a place for ‘rising stars’ in the industry,” one wonders where?

Before Covid, emerging luxury brands hoped to find ground online where big brands were reluctant to venture, but that has changed. Big brands have aggressively entered the online space over the past two years, which has grown from 12% personal luxury market share in 2019 to 22% in 2021, an astonishing 38% increase since then. 2019.

Additionally, around 40% of the online segment is now controlled by single-brand websites, rather than multi-brand marketplaces. The share of single-brand websites increased from 30% in 2019.

Online success depends at least in part on the amount of advertising dollars injected into online channels. With increasing digital advertising spending and more powerful brands entering the space – Magna reports global digital media has grown by almost a third year-over-year in 2021 – small brands can’t begin to match the online marketing muscle of big brands.

Distribution shrinks

The pandemic has literally closed the doors of physical retail and they only partially opened in 2021. Specialty retailers have grown from 20% of the personal luxury goods market share in 2019 to 16% in 2021, a 10% drop in sales. Department stores fell 8%, from 18% SOM to 15% in 2021.

Even more troubling, they are expected to continue on a downward trend until 2025, when they will only hold a 10-12% stake each.

Sadove suggests that these numbers may not be as striking as they first appear. “The customer wants a seamless experience to shop anywhere, anytime. Physical stores are distribution centers for online. It’s not a question either-or but both. Distribution is a complex discussion.

What Sadove sees evolving in distribution is an evolution towards more concession models in retail, moving from traditional distribution from wholesale to retail. But that, too, will favor powerful brands that have long practiced concessions, leaving emerging brands behind.

Restructure the luxury retail ecosystem

“High-end brands want to control their own fate and the way they appear and are presented in the store,” he said, adding, “So we’re not going to move away from department stores but change the economic relationship that they talk to them for concessions.

Rather than wholesaling in stores and losing margin, powerful brands will instead pay rent, as they are already doing in their single-brand stores which are up 3% from 2019 to capture 32% share. Steps.

Over the past twenty years, the wholesale market share has fallen from 72% in 2010 to 51% in 2021, with the largest decline starting in 2019 when it fell from 60%. Now the distribution is divided almost in the middle, half by the wholesale and the other half by the retail.

While Bain doesn’t predict where wholesale and retail will end by 2025, it is almost certain that the twenty-year trend away from wholesale will continue.

“The economic model will continue to evolve. The customer goes shopping and goes shopping in different ways, ”says Sadove.

Wildcards

Second-hand luxury goods sales are not included in Bain’s estimate of the size of the personal luxury goods market, but in 2021, Bain reports that they will be 33 billion euros or $ 38 billion. in sales, up 27% compared to 2019.

It is already about half the size of each of the three main categories of personal luxury goods – leather accessories, beauty products and clothing – and its growth of 27% from 2019 leaves all other categories of items. luxury in the dust.

It can be argued that the buyer of second-hand luxury goods is not the same as the primary market buyer. But with the future of the luxury market now on the shoulders of next-generation customers, who are expected to account for 70% of global purchases by 2025, and those sustainability-conscious customers, we can expect a shift in products from first-hand luxury to second-hand luxury goods.

And finally, Bain’s positive growth projections depend on Chinese consumers and their continued appetite for luxury brands. They are expected to account for between 40% and 45% of purchases by 2025, when mainland China overtakes the Americas and Europe as the world’s largest market.

But because of its vast cultural and geopolitical differences, China can be a risky bet for Western luxury brands. Daniel Langer, founder of the luxury consultancy firm Equité and contributor to Daily Jing, warns against “chic China”.

“Young and wealthy Chinese Gen Z consumers find local brands much more ambitious and desirable than Millennials or Gen Xers,” he wrote, observing that native Gen Z consumers are exceptionally proud of their Chinese cultural heritage and its future potential.

Although he believes that Chinese luxury brands will not suddenly replace the aspiration of Western luxury brands, he cautioned, “There are clear signs that a fundamental change is happening and, like so many disruptions in the luxury space, it’s driven by Generation Z.. “

“Chinese chic is just a problem for brands that continue to do what they have always done. Competition will intensify, new players will emerge, and consumer preferences will change rapidly. Agile and proactive brands that are radically customer-centric have a chance to win, ”he advised.

These wild cards – pre-owned luxury, next-gen consumers and China – could continue to test the “strength, resilience and agility” that Bain says have enabled luxury brands to weather the “enormous turbulence” of the two. last years. But with more turbulence to come, powerful luxury brands are in the best position to pull through.


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