Lux­ury goods sales to add sparkle

Bain re­port shows growth is stronger than ex­pected

The National - News - Business - - Inside Track -

Global sales of per­sonal lux­ury goods will grow by a stronger-than-ex­pected 2 to 4 per cent at con­stant ex­change rates in 2017, as higher spend­ing in Europe and China out­pace weak­ness in the United States and South East Asia, a re­port showed yes­ter­day.

In 2017, to­tal rev­enue in the sec­tor that in­cludes watches, jew­ellery, clothes, shoes and leather goods will rise to be­tween €254 bil­lion (Dh1.04 tril­lion) and €259bn from €249bn in 2016, the study by the con­sul­tancy group Bain & Co and the 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 to 2 per cent for the lux­ury sec­tor, but the in­dus­try man­aged to grow 4 per cent year-on-year 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, a Bain part­ner and the lead au­thor of the study.

Bain does not name spe­cific com­pa­nies but in the first quar­ter of 2017 the lux­ury ma­jors LVMH, Ker­ing and Her­mes all posted strong results.

“It’s a health­ier growth than be­fore,” said Fed­er­ica Le­vato, also a Bain part­ner and an­other of the re­port au­thors. “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 up by 7 to 9 per cent.

Main­land China was re­cov­er­ing with 6 to 8 per cent growth, said the re­port. Bain pre­dicted that sales in the rest of Asia could shrink by 2 to 4 per cent in 2017. Hong Kong, Ma­cau and Sin­ga­pore are on the mend but Tai­wan and South East Asia face a fall in tourist numbers from China and South Korea, while Ja­pan was seen as stay­ing flat.

The US, the largest lux­ury goods market, is also set to un­der­per­form, with a strong dol­lar and un­cer­tainty about the poli­cies of the US pres­i­dent, Don­ald Trump, ex­pected to cre­ate a chal­leng­ing en­vi­ron­ment.

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

Higher spend­ing in Europe and China out­paces weak­ness in the US and South East Asia

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