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Luxury brands should rethink their value propositions and diversify their customer base to remain competitive in the market, according to Bain and Altagamma’s latest luxury goods worldwide market study, released on 18 May.
The study, which analyses insights from macroeconomic data and forecasts, trading performance, financial results, analyst reports and expert opinions, notes a slight decline in the personal luxury goods market in the first quarter of this calendar year. The broader global luxury market has largely stabilised since 2023, exceeding €1.5 trillion in size thanks to a resurgence in travel luxury, a growing appetite for luxury experiences (such as hospitality and fine dining) and a strong holiday and fourth-quarter performance in the US. The personal luxury goods market is expected to grow modestly in 2024 to between €365-385 billion, up from €362 billion in the year prior.
A polarised performance across the luxury sector is the most notable takeaway from the report. “The market is holding, even if we see strong polarisation,” says Bain partner Claudia D’Arpizio, lead author of the report, speaking to Vogue Business ahead of publication. “Brands are performing very differently and we have this polarisation in all regions, with the exception of Japan.”
Within the personal luxury goods sector, jewellery is a top performer at both entry level and the top end, surpassing growth in watches. Apparel has broadly outpaced accessories, while bags retain traction despite price hikes. The aspirational customer, meanwhile, has cut down on shoe spending, with a preference for smaller indulgences such as makeup, fragrances and eyewear.
For the personal luxury goods market to maintain stable growth, brands are advised to address price rises while reassuring customers about the value of their offerings.
Global market performance
In the first quarter of 2024, Europe witnessed high levels of polarisation, with the majority of companies remaining resilient; the Americas were also polarised, but mostly skewed towards a slowdown. In China, many brands struggled and there were few winners, while the rest of Asia saw mixed performances based on category and brand type. Japan, a bright spot, outperformed.
China remains under pressure, partly due to spikes in Chinese foreign travel as well as rising economic uncertainties that have weakened demand. These uncertainties are undermining middle-class consumer confidence: the report says this group is experiencing “luxury shame” when purchasing higher priced goods, preferring understated products over those that are heavily branded; a trend partly spurred by the Chinese government’s crackdown on corruption and excessive spending.
Japan’s strong performance has been bolstered by tourism, particularly from outbound Chinese shoppers (at the expense of duty-free favourite Hainan, where sales are down 30 per cent year-on-year). “Wherever you have a price differential resulting in access to products for an aspirational customer, like in Japan, that is where everyone is performing decently,” says D’Arpizio. “In markets where brands are focused on local customers and top of the pyramid rather than alienating the aspirational customer, performances are more polarised.” She highlights Southeast Asia, India and Mexico as markets where the middle classes are growing.
Despite macroeconomic pressures, growth remains in the US, with signs of improvement in GDP (it rose by 3 per cent in Q1) and consumer confidence (up 2 per cent in Q1). Challenges ahead include the fragility of the aspirational customer and the prospect of a presidential election in November disrupting consumer confidence. However, D’Arpizio predicts more stability and an improvement in consumption patterns following the electoral period.
The aspirational customer should not be sidelined
Despite plenty of noise around Gen Z, the younger generation is spending less on luxury goods in real terms, according to the report. Younger millennials are also constrained by limited spending power, although older millennials are benefitting from inherited wealth.
“In apparel, there is a concentration of efforts on the top of the pyramid and a little bit of a lack of creativity and newness,” says D’Arpizio. She points out that in the luxury industry, “everyone tends to do the same strategy”, which is particularly off-putting for younger customers. “There is a taste for less fashionable items that has brought with it the sense that there is not enough excitement around new products, and this is probably reducing the growth of the market.”
The right approach is to take the “high-low” route, says D’Arpizio. The hope is to maintain resilience by nourishing relationships with top clients while future-proofing via widening the entry-level audience, she adds. This requires an increase in high-end offerings alongside simultaneously presenting improved entry-level products that deliver value to the customer. D’Arpizio highlights the opportunity for new affordable luxury brands that are authentic in their value proposition, as well as the chance for luxury brands to reach new audiences through sport, including those featured in the upcoming Paris Olympics.
Market conditions have prompted brands to focus on the traditional luxury consumer. Any successful expansion of the customer base will require brands to be more inclusive (diversity and inclusion efforts have backtracked amid economic uncertainties). “2018 to 2020 were huge for recruiting the younger generation through geolocation, different ethnic groups and cultures. Brands have now gone back to the old customers of luxury, which is not helping the dynamism of the market,” says D’Arpizio. “They succeeded in enlarging the customer base, but now these customers will be disappointed because they were invited to the party — and they’re not being taken care of.”
It’s hard to execute a brand turnaround in the current market conditions, D’Arpizio says. Consumers tend to stick to their favourite brands and products in periods of instability — so brand turnarounds can take longer than expected. “All these changes in creative directors are not helping the sector because brands need to consolidate a creative vision. They can for sure create buzz, but the turmoil and changes in aesthetic are not helping,” says D’Arpizio. “That said, the ones that are succeeding have a clear proposition in terms of style and commercial attitude and know their customer very well.”
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