Luxury goods sales to drop by 10% in 2009, says Bain & Company

29 April 2009

The luxury sector faces between a 15% and 20% decline in sales revenues during the first two quarters in 2009 (at constant exchange rates), shrinking to 153 billion euro from its 2008 level of 170 billion euro. Bain estimates that the worldwide luxury market will begin stabilizing in the second half of the year, resulting in a net decline of 10% for 2009 overall.

Bain & Company has released a semi-annual update to its Luxury Goods Worldwide Market study (7th edition) in response to the sharp deterioration of the global economy since October 2008.

Top and bottom lines impacted

“This year’s declines are hitting both the top and bottom lines of luxury goods companies,” said the study’s author Claudia D’Arpizio, a Bain partner and luxury goods expert based in Milan. “Luxury shoppers are spending less, travelling less and feeling less confident. Luxury goods producers are also feeling the additional squeeze of intense pricing pressure and markdowns from retailers and higher-end department stores.”

Bain estimates a 15% decline in the Americas and 10% declines in Europe and Japan. These major luxury markets account for over 80% of worldwide sales. Smaller luxury markets show more promise, with projected growth of 7% in China and 2% in the Middle East, but these gains will provide only a small offset against steep declines in major markets.

Cosmetics most resilient category

Among the major luxury product categories, apparel will be hit the hardest, declining by 15%. Jewelry and watches will decline by 12%, while leather goods, shoes and accessories will decline by 10%. Luxury cosmetics and fragrances will be the most resilient categories in 2009 with sales of 22.4 billion euro for cosmetics and 18.4 billion euro for fragrances, both comparable to 2008 levels.

Long-term growth

Though luxury companies will face increased pressures in 2009, Ms. D’Arpizio cautions them to resist overreacting to anticipated declines. Bain’s analysis shows a long-term trend of continued growth in the number of luxury customers with the new segments emerging, including:

– newly affluent consumers in emerging markets, especially working women,
– men who are more willing to pamper themselves,
– younger generations with new tastes and styles,
– the increasing number of high net worth individuals (according to Bain’s 2009 China Private Wealth Study, the number of Chinese high net worth individuals - those with more than 10 million RMB, or approximately US$1.5 million - is estimated to grow by 6% in 2009).

View online : www.bain.com