The global luxury goods sector is poised for a rebound. However, many uncertainties remain — and there are two possible trajectories for the market’s recovery this year.
That’s according to Bain & Co., which released a report today in collaboration with Italian luxury brands committee Fondazione Altagamma. According to the management consulting firm, the market could reach 250 billion to 295 billion euros (or about $304 billion to $358 billion at current exchange), depending on which one of two scenarios play out in 2021.
In the first case, which carries a probability of 30%, Bain predicted that the sector could hit 2019 levels as early as this year — leading to sales of at least 280 billion ($340 billion) to 295 billion euros.
More likely to occur, however — at a 70% probability — is that slower domestic luxury purchases and limited intraregional tourism will stifle 2021 gains. In this second scenario, a full recovery to 2019 levels isn’t expected until 2022, and for this year, Bain estimates the market would achieve 250 billion to 265 billion ($322 billion).
Still, the firm expressed optimism following a strong start to the year. The luxury goods sector returned to growth in the first quarter, improving up to 1% (or 2% to 3% at constant exchange rates) versus 2019, which is viewed by the industry as the last comparable year amid the COVID-19 health crisis.
The recovery, reported Bain, has been driven by China, while the United States has been an “unexpected bright spot” due to fiscal stimulus, pent-up demand and a rapid vaccine rollout — all of which have spurred some consumers to return to stores or increase their spending. (Europe, however, has continued to lag due to slower vaccination efforts and a lack of international tourism.)
“It’s clear that consumers still want to buy luxury goods, and this, along with the brands’ ability to adapt and innovate, is driving a return to growth in the market,” explained Claudia D’Arpizio, a Bain & Co. partner and lead author of the study.
Among the trends that the firm suggested could take shape in the coming months is a Roaring ’20s of sorts in the U.S., as well as a pandemic-induced exodus to the suburbs and birth of new city hubs. It also emphasized the importance of human touch in the luxury market — even though 85% of luxury purchases have been “digitally influenced” so far this year, Bain indicated that in-store or remote interactions will play a critical part in maintaining customer loyalty.
“Brands have been forced to rip up the playbook and innovate rapidly in light of the crisis,” said Bain & Co. partner and report co-author Federica Levato. “As life hopefully begins to return to normal, customers are expecting a tech-enabled human relationship with brands. Winners will need to stay closely in touch with the key trends shaping the new normal lifestyle — all while remaining differentiated and creating a narrative that is true to their own culture.”