Outlook for luxury sector is "optimistic"

By Petah Marian

The outlook for the luxury goods sector is optimistic, according to research released by Euromonitor, with sales forecast to reach $405 million by 2019.

It said the data also indicates that it’s a case of swings and roundabouts for the global luxury goods industry. Despite Asia’s slowing growth on the back of China’s repositioning, Japan’s luxury market is witnessing a long-awaited revival thanks to its favourable exchange rates, while income inequality is beefing up spending by the higher-income segments in smaller Southeast Asian and Sub-Saharan African countries.

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Luxury sales in China increased by $9.6 billion in the five years to 2014. Euromonitor Luxury Goods head Fflur Roberts said: “Aside from the US, which, at number one, increased by US$18 billion, no other market came even close to that growth. However, this impressive growth fizzled out towards the end of the review period, leading many luxury brands to question their strategy for China and other emerging markets.”

The research house said that sales in China’s luxury goods market will see it drop from third to fourth place in its global rankings for 2014, and its forecasts for China have also been revised down following a weak year of slowing economic growth, combined with the government’s clampdown on consumption and luxury-gifting. It now expects real growth to come in at 4% in 2014, with a more positive outlook of 6% for 2015. The good news for China is that the stronger external environment is supporting Chinese exports. “This has already been seen in the rebound in industrial production, with real GDP growth slightly higher than expected,” the study said.

While China’s rebalancing continues at a gradual pace, luxury consumption has remained strong and there are still plenty of opportunities for growth – supported by a strong labour market and income growth. We expect luxury expenditure to increase by 52% in real terms in the five years to 2019, driven by real gains in disposable income of 64% during the same time period. China is still on course to overtake Japan as the second biggest luxury market in the world, but this shift will now be delayed until 2019 as opposed to the previous prediction of 2016. This moratorium on China’s move into second place will also be a result of Japan’s positive outlook.

It said that the heady days of 20%+ growth appear to be over for China’s luxury market.

The study suggested that broad geographic and category spread are key for sustained corporate and brand health. As found by many luxury brands with their focus on the emerging economies and Asia Pacific in particular post-recession, with luxury consumers switching away from aspirational to more affordable luxury – putting too much emphasis on one area might have short-to-medium-term benefits, but is likely to lead to longer-term difficulties.

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