Europe ‘to drive luxury goods sales’

Bain report predicts 2-4% growth for 2017

PARIS: Global sales of personal luxury goods will grow by a stronger-thanexpected 2-4% at constant exchange rates in 2017, as higher spending in Europe and China outpace weakness in the United States and Southeast Asia, according to a report released yesterday.

“In 2017, total revenue in the sector that includes watches, jewellery, clothes, shoes and leather goods will rise to €254 billion-€259 billion ($284 billion-$289.25 billion) from €249 billion in 2016,’’ the study by consultancy group Bain & Co and Italian luxury industry association Altagamma showed.

The luxury goods sector has suffered in the past couple of years from fewer tourists coming to Europe after a wave of militant attacks on the continent, less business in Hong Kong and slowing demand in China.

In October, Bain had forecast 2017 growth of 1-2% for the luxury sector, but the industry managed to grow 4% year-onyear in the first quarter of 2017.

“After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. The continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year,” said Claudia D’Arpizio, Bain partner and lead author of the study.

Bain does not name specific companies, but in the first quarter of 2017 luxury giants LVMH Moet Hennessy Louis Vuitton SE, Kering SA and Hermes International SCA all posted strong results.

LVMH, the world’s leading high quality products group, recorded revenue of €9.9 billion for the quarter, an increase of 15%.

French luxury group Kering delivered a record 28.6% increase in first-quarter comparable sales, beating market expectations, as a revival in its biggest brand Gucci accelerated and Yves Saint Laurent outperformed.

Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, reported an 11.2% rise in revenue at constant exchange rates to €1.352 billion ($1.47 billion) in the first quarter, compared with 6.6% growth in the last quarter of 2016.

Bain partner Federica Levato, another of the authors of the report, told Reuters: “It’s a healthier growth than before. So we have revised our market forecast for this year. Some players who are doing well are really outperforming.”

Europe, which is starting to see tourists returning, is expected to be the fastest growing market for luxury goods this year, with sales seen up 7-9%.

Bright spots were Spain, seen as a relatively safe destination, and Britain, rendered more affordable to tourists after a post-Brexit slump in sterling, while mainland China was also recovering with 6-8% growth, said the report.

Bain predicted that sales in the rest of Asia could shrink 2-4% in 2017.

Hong Kong, Macau and Singapore are on the mend but Taiwan and Southeast Asia face a fall in tourist numbers from China and South Korea, while Japan was seen as staying flat.

The United States, the largest luxury goods market, “is also set to underperform, with a strong dollar and uncertainty about the policies of President Donald Trump expected to create a challenging environment,’’ said the Bain report.

In coming years, the luxury market is set to keep expanding at an average annual rate of 3-4% to reach €280 billion-€290 billion in sales by 2020, driven by a growing Chinese middle class and a recovery in more mature markets.

By 2025 the so-called ‘millennials’, the tech-savy generation born after 1980 and those born after 1995, “will represent 45% of overall luxury consumption, with Asian consumers accounting for more than half,’’ the study added.