Despite a lingering US – China trade war, tit for tat tariffs between the EU and the US and global economic worries luxury goods sales are booming. And that’s good for the economy.

The overall luxury market – encompassing both luxury goods and experiences – grew by 5 percent at constant exchange rates in 2018 to an estimated €1.2 trillion globally, with overall positive performance across all segments. Personal luxury goods outperformed the market, posting 6 percent growth at constant exchange rates to reach €260 billion, affirming the ongoing era of a “new normal.” Looking ahead, this positive growth trend is expected to continue in the range of 3-5 percent per year through 2025 – a result of favorable market fundamentals – to reach €320-365 billion.  However, socio-political issues, commercial policies, and potential short-term soft recessions could make this road to growth a bumpy one in the short term.

These are the top-line findings from the 17th edition of the “Bain & Company Luxury Study,” released today in Milan in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.

“Last year, we saw the global luxury market return to healthy growth, albeit at a more moderate pace than in the past,” said Claudia D’Arpizio, a Bain partner and lead author of the study. “That trend continues in 2018, reinforcing the ‘new normal’ we predicted, led by flourishing luxury demand from Chinese consumers, the continued rise of online channels, and increasing influence from younger generations of consumers.” 

Chinese consumers’ luxury dominance remained unrivaled in 2018

Chinese consumers are leading the positive growth trend around the world. Between 2015 and 2018, their purchases in Mainland China contributed twice as much growth as their spending abroad. Their share of global spending has continued to rise (now estimated at 33 percent of global luxury spend, up from 32 percent in 2017), while the share of Mainland China has also risen to 9 percent (up from 8 percent in 2017). In Mainland China, luxury sales grew 18 percent at current exchange rates to €23 billion (20 percent at constant exchange rates), driven by rising demand rather than by price increases. Chinese travelers are changing a lot of the retail and travel landscape.

Some markets rose nearly in line with China, while others lagged behind. On balance though Asian consumers are insuring that luxury goods sales are booming.[/su_box]Luxury purchases in Japan softened slightly, pushing brands to find new solutions to bring consumers back to stores. However, retail sales still grew at 3 percent at current exchange rates to €22 billion.  Increased consumption from tourists in Japan is prompting brands to rethink their distribution models.

Across the rest of Asia retail sales grew 7 percent at current exchange rates to €39 billion, due to dynamic growth in South Korea, driven by strong local consumption.  Brisk growth in other Asian countries – Singapore, Thailand and Taiwan – also contributed.  Hong Kong and Macau benefitted from Chinese purchases.

Europe lagged in 2018 due to a strong Euro that impacted tourists’ purchasing power.  Local consumption was positive overall, despite mixed country performance, helping to boost retail sales 1 percent at current exchange rates to €84 billion.

The Americas grew 5 percent at current exchange rates to €80 billion.  A positive U.S. economy boosted disposable income and overall luxury spending from locals, even as brands remained wary of continued economic prosperity.  However, the strong dollar impacted tourists’ spending from Asia and Latin America.  Canada and Mexico were strong players in the region, while political uncertainties derailed Brazil’s performance.

In other areas, growth was 0 percent at current exchange rates, holding at €12 billion, mainly due to stagnation in Middle East brought on by a recent government spending restriction.

Consumers are increasingly shopping for luxury online

The retail channel grew 4 percent in 2018, with three-quarters coming from like-for-like sales growth.  Wholesale channels grew at only 1 percent, brought down by high-end department stores still trying to recover, and a slow-down among specialty stores facing tough competition from online.

The U.S. market made up close to half of online sales – 44 percent– but Asia is emerging as the new growth engine for luxury online, slightly ahead of Europe.   Accessories remained the top category sold online, ahead of apparel; beauty and hard luxury (jewelry and watches) were both on the rise. Brands are catching up to other online players, comprising 31 percent of sales, compared to e-tailers (39 percent) and retailers (30 percent).

“New technologies are at once enriching the online and mobile shopping experiences, while potentially putting role of physical channels at risk,” said Federica Levato, a Bain partner and co-author of the study.  “The luxury store-opening path is slowing down, leading to channel consolidation in the future. Brands must therefore re-think their physical channels and evolve their role from point-of-sale to point-of-touch, and use new technology to enhance customers’ in-store experiences.

Luxury goods sales are booming and for the immediate future their resilience may be the best news for retail in the year ahead.