Currency Fluctuations and Luxury Globe-Trotters Boost Global Personal Luxury Goods to over a Quarter Trillion Euros

According to Bain & Company’s 2015 worldwide luxury report, luxury
brands will need the right pricing model to win against hard-to-predict
currency volatility

MILAN–(BUSINESS WIRE)–The overall luxury industry – which as tracked by Bain & Company
comprises 10 segments, led by luxury cars, luxury hospitality and
personal luxury goods accounting for 80 percent of the total market –
surpassed €1 trillion in retail sales value in 2015. The market
delivered healthy growth of 5 percent year-over-year (at constant
exchange rates), driven primarily by luxury cars (8 percent), luxury
hospitality (7 percent) and fine arts (6 percent). Aided by global
currency fluctuations and continued jet-setting of “borderless
consumers,” the personal luxury goods market ballooned to over a quarter
trillion euros. While global tourists flocked to Europe and Japan to
capitalize on a weak Euro and Yen, the Americas region, stagnant in real
terms, was strongly inflated by the super dollar, thus capturing more
than a third (34 percent) of the global market in 2015E. Meanwhile, Asia
registered the worst historical performance (at constant exchange
rates), driven by the lackluster trend of Mainland China and the sharp
drop in sales in Hong Kong and Macau. These are key findings from Bain
in the 14th edition of its “Luxury Goods Worldwide Market
Monitor,” released today in Milan in collaboration with Fondazione
Altagamma, the Italian luxury goods manufacturers industry foundation.

The personal luxury goods market – including leather accessories,
fashion, hard luxury and fragrance & cosmetics – reached €253
billion in 2015.
This represents 13 percent growth at current
exchange rates, while real growth is significantly slowing to 1-2

“For the last several years, we’ve referenced ‘luxury’s new normal’ with
a deceleration of the personal luxury goods market. Now, we are starting
to feel the impact of that slow-down,” said Claudia D’Arpizio, a Bain
partner in Milan and lead author of the study. “The challenge for luxury
brands in this environment is how to successfully navigate through
hard-to-predict volatility.”

Regional Trends: The Great Mall of China

According to Bain’s research, Chinese consumers continue to make up the
largest portion of luxury purchases (31 percent) globally, followed
closely by Americans (24 percent) and Europeans (18 percent).

Chinese consumers are flocking to mature markets in droves, especially
Europe, where an analysis of European tax-free shopping data, conducted
in partnership with Global Blue, shows Chinese tax-free purchases
increased by 64 percent, particularly among the accessible and
aspirational luxury segments, thanks to a weak Euro. Americans also
increased their tax-free spending in Europe by 67 percent, aimed largely
at the high end of the luxury spectrum. Meanwhile, Russians cut their
European spending by 37 percent, and spending among the Japanese in
Europe also withered by 16 percent.

“Undoubtedly, Chinese consumers play a primary role in the growth of
luxury spending worldwide,” said Federica Levato, principal at Bain and
co-author of the study. “For years, we have known that they spend far
more abroad than in Mainland China, but what’s changing is that they’re
spending little money in historically popular destinations, such as Hong
Kong and Macau, and are instead gravitating to new locales, such as
Europe, South Korea or Japan, to benefit from currency fluctuations that
drive favorable price gaps.”

In terms of constant exchange rates, the U.S. market did not
deliver. The “super dollar” was too expensive for many global tourists
and though local consumption is growing, it was barely sufficient to
offset the lost tourism revenue. Nevertheless, the U.S. is the confirmed
largest luxury market in terms of global luxury value, reaching €79
billion; New York City alone outweighed all of Japan.

Japan has proven to be a consistent champion in both real and
nominal terms, driven by a sound base of local consumers and the
emergence of Chinese shoppers looking to capitalize on currency

The personal luxury goods market in Hong Kong and Macau has
fallen victim to a number of government measures aimed at regulating the
grey market in China, creating a 25 percent contraction in real terms.

While local spending in China continued to slightly contract, the
appreciation of the local currency has boosted the country to the number
three spot in terms of global luxury value, overtaking Italy and France
and trailing only the U.S. and Japan.

Distribution trends

Wholesale is still the dominant selling channel within the personal
luxury goods market, capturing 66 percent of market share. However,
retail continues to gain share, despite a slowdown in network expansion
(+600 directly operated stores opened globally in 2015 vs. 750 in 2014)
and growth in like-for-like sales (+13 percent at current exchange

Simultaneously, e-commerce grew to 7 percent market share in 2015,
nearly doubling its penetration since 2012. Luxury globe-trotters have
also fueled the performance of airport retail, which posted a +29
percent growth rate in current exchange rates (+18 percent in constant
exchange rates) and now accounts for 6 percent of the global luxury

With the growing middle class in economies such as China seeking good
quality and good value, the off-price channel has more than doubled to
nearly €26 billion. Mark-downs are also increasing in prevalence across
more than 35 percent of the luxury market, with a strong relevance in
department and specialty stores, as well as online.

The Price of Luxury

According to Bain, the number one challenge facing most luxury brands is
establishing the right pricing model. The rise of e-commerce and global
tourism growth create greater transparency around international price
differentials. Additionally, price-conscious luxury shoppers are
struggling to reconcile the price of luxury products with their real
value. As a result, luxury brands must assess how to mitigate volatility
and how best to deliver at local and global levels. This includes
managing inventory to accommodate fluctuations in tourism and
coordinating pricing and mark-downs across markets and channels. Luxury
brands also face a host of tough issues such as rethinking their store
footprint and the role of their stores in a world of growing
digitalization, as well as figuring out how to delight local customers
even as masses of tourists flock to stores in mature markets.

“Relentless price increases over the last decade, aimed at creating a
more exclusive position in the market and maximizing touristic flows are
now starting to backfire on luxury brands,” said D’Arpizio. “They face
the long-term challenge of re-building credibility and trust among
consumers, rather than simply making shortsighted, tactical pricing
adjustments to benefit from market fluctuations.”

For a copy of Bain’s “Global Luxury Goods Worldwide Market Study, Fall
2015 Update,” or to schedule an interview with Claudia D’Arpizio, please
contact Dan Pinkney at
or +1 646 562 8102.

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Dan Pinkney, +1 646 562 8102