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Two scenarios for the luxury industry in 2021

Two scenarios for the luxury industry in 2021

Sunday, 06 June 2021
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

The latest study from Bain & Co – Altagamma reports a return to growth for luxury in the first quarter. Will this play out for the entire year or – the more likely option according to Bain – will full recovery be in 2022?

Luxury is on the road to recovery, something the latest Swiss watch export figures confirm. Thanks to shipments of watches with an export price above CHF 3,000, the industry is “back to the baseline” set in April 2019. The recently published “Luxury Study 2021 Spring Update” from Bain & Company in collaboration with Fondazione Altagamma comes to the same conclusion: “Following a turbulent year, the luxury market has started its path towards recovery. The industry returned to growth in the first quarter of 2021, growing by 0-1% versus 2019, which is viewed by the industry as the last comparable year.” According to Claudia D’Arpizio, a Bain & Company partner and lead author of the study, “It’s clear that consumers still want to buy luxury goods, and this, along with the brands’ ability to adapt and innovate, is driving a return to growth in the market.”

The US market has been the unexpected bright spot.
Bain & Co

The report describes the different factors behind this positive first quarter: “While China is driving the recovery thanks to continuous repatriation and acceleration of domestic spending on luxury, the US market has been the unexpected bright spot. Renewed consumer confidence coupled with stimulus and a rapid vaccine rollout has meant that luxury consumption returned at surprisingly fast pace. Europe still lags behind, hampered by a slower vaccination campaign and the lack of international tourism.” The consultancy goes on to propose two possible scenarios for an industry still facing uncertainty. The first is that this recovery path will continue throughout 2021, winning back 2019 market level as early as this year. In this outcome, the market could reach €280-295 billion in 2021. In the second scenario, despite the strong momentum of the first quarter, full year growth will be stifled by slower domestic luxury purchases and limited intra-regional tourism. In this case, the full recovery to 2019 levels would be expected only in 2022 and the market would reach €250-265 billion in 2021. Bain & Co sees this second option as the more likely of the two, giving it 70% probability versus 30% for the first scenario.

Positive signs

As the luxury industry continues to navigate its way out of crisis, some of the key trends observed during the global pandemic have been borne out, starting with China’s seemingly insatiable appetite for luxury goods. The explosion in online retail shows no signs of abating, with new clients purchasing luxury products online for the first time. Price points are increasingly concentrated at each end of the spectrum, with more entry-level products but also an increased number of high-end items.

The market for pre-worn luxury items encompasses top spenders and collectors who are searching for high-end or collectable products.
Bain & Co

Bain & Co has identified three trends to watch over the coming months. Firstly, the “Roaring 20s” generation is helping reshape the luxury market in the United States. Secondly, despite the digital acceleration, the human touch has lost none of its relevance, as human interaction continues to play an important role in creating vital customer loyalty. Thirdly, the second-hand market for luxury goods is growing. According to Bain, the second-hand market for luxury should be worth €28 billion in 2020 (up from €26 billion in 2019) and reach multiple consumer segments, from “entry-level younger consumers who are mainly buying aspirational categories and products” to “top spenders and collectors who are searching for high-end or collectable products. Brands are increasingly tapping into this market and becoming platforms in order to engage with them throughout the lifecycle of an item.”

Does this mean a “new normal” for the luxury industry in a still uncertain environment but with potential for growth, nonetheless? One thing is for sure: luxury brands must reach out to customers and stay in touch with their expectations and aspirations, overcoming obstacles and without ever losing sight of brand culture.

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