Luxury Goods - In-depth Market Insights & Data Analysis

The global luxury goods market is expected to increase from US$349.1 billion in 2022 to US$419 billion in 2027, at a CAGR of 3.7%. Even though cutbacks on discretionary spending and an uncertain economic climate triggered by the COVID-19 pandemic resulted in a sharp fall in demand in 2020, the resurgence in Chinese and American spending, the increasing dominance of millennials and Generation Z and the consistent strength of the online channel, have led to a strong revival in the market which is expected to continue over the medium to long-term as well. Asia is expected to witness the highest spending, riding the crest of Mainland China’s resurgence, followed by Europe, North America, South America, Africa, and Australia and Oceania.

Even though luxury online sales are gaining market share worldwide, the importance of the physical store continues to increase. Companies follow different strategies to augment their retail experience in the days of eCommerce. Interestingly, digital-born luxury companies are now opening physical stores to increase traffic to their eCommerce stores, enhance brand legitimacy, provide the touch and feel lacking in an online store, and improve local community engagement.

The luxury industry has been associated with excessive consumerism and a general lack of respect for the environment. However, with the growing influence of Millennials and Generation Z who deeply consider the social impact of their luxury purchases, the industry is gradually moving towards ethical and sustainable products and experiences.

Casualization of apparel, the growing demand for experiential luxury, rentals, and the rising share of online sales and accessories are other important market trends.

Spending by millennials from Mainland China, both at home and overseas, is one of the main drivers of the global luxury market. Mainland China currently has around 400 million millennials, five times more than the U.S. International tourism is another driver with a 2017 Deloitte study showing global tourists to account for almost 47% of luxury goods purchases. The recent rise of luxury menswear has resulted in brands such as Prada, Gucci, and Dolce & Gabbana, which traditionally have not been known for their menswear lines, to open stores focused only on men.

Demand for mass-customization of luxury products has forced the leading brands to revisit their existing manufacturing process. Although, luxury manufacturers have historically been technology laggards, they are now integrating advanced digital technologies such as additive manufacturing, analytics, material science, augmented reality and AI, into their manufacturing processes.

Resale of luxury products, NFTs and social gaming present growth opportunities for the luxury manufacturers. Historically, luxury brands have been averse to reselling their products in order to protect their brand identities and margins. However, the last few years have witnessed a surge in the sales of pre-owned luxury products, thanks mainly to specialized digital trading platforms and fast-changing consumer behavior. Licensing has started to present growth opportunities for brands in terms of increased product and geographical reach, while maintaining product quality control and brand exclusivity.

Even though Chinese spending on luxury products has been one of the key drivers of the industry’s post-pandemic recovery, challenges including unfavorable demographics, nationalistic sentiments, indigenous brands and geopolitical tensions threatens to slow down the global market.

In addition, the Russia-Ukraine war has prompted many luxury brands including Hermès, LVMH, Chanel, Kering, Prada, Richemont, Net-a-Porter and MyTheresa to suspend their operations in the country indefinitely that eventually hurting the overall market.

Although eCommerce has permeated almost every industry over the last decade or so, luxury brands have been wary of selling online, relying instead on their brick-and-mortar stores. This was mainly to maintain their exclusivity, craftsmanship and authenticity. However, COVID-19 has changed the scenario drastically, driving luxury online sales past the tipping point. Pure-play multi-brand retailers such as Farfetch, Tmall Luxury and JD.com Luxury, that offer both multi-brand marketplaces and mono brand eCommerce websites, have been the biggest winners in terms of revenues and number of users.

Chinese and Indian cities such as Guangzhou, Beijing, Shanghai, Hong Kong, Delhi and Mumbai, have been luxury hotspots in the two countries for many years. However, their saturation along with the COVID-19-induced migration of a large part of the working population to a work-from-home model and the sharp increase in online shopping, has put the spotlight on tier-2 and tier-3 cities.

Brands are now adopting digital technologies to not only mimic the in-store shopping experience on their eCommerce platforms but to also enhance the physical store experience. Artificial intelligence (AI) is currently the most sought-after technology, as it enhances customer experience and helps brands reach a wider audience.

Immersive technologies such as virtual and augmented reality (VR/AR) are also experiencing increasing use due to their ability to enhance the overall shopping experience and create high-quality content for digital marketing. 3D printing is used mainly in luxury fashion as it enables the creation of shapes without molds, thus resulting in elements with extreme intricacy.

The U.S., Mainland China, and Japan are projected to be the three biggest markets for luxury goods in 2022 with a market size of US$74.7bn, US$53.3bn and US$29.9bn respectively. These markets are projected to account for 47% of the global luxury market in 2022. Even though the U.S. retains the leading position for luxury goods globally, factors such as economic and political uncertainty, cutbacks on discretionary spending, and low sales to international tourists are affecting market growth.

France leads in the number of leading luxury goods companies globally. Specifically, most of the prominent French luxury goods companies are located in Paris. We have a closer look at some of those prominent French companies: LVMH, L'Oréal, Kering, and Hermès along with other global leaders including Burberry, Swatch, Estée Lauder, and Coty.

Most of the luxury goods companies followed inorganic growth path by acquiring competitor companies to increase their business presence. A few of them opted for licensing and distribution arrangements to support their bottom line.