On June 12, 2024, in Bangkok, Thailand, when people entered the luxury shopping mall Icon Siam on the banks of the Chao Phraya River, they could see Dolce & Gabbana, Tiffany & Co. and Patek Philippe ) storefront.
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The personal luxury goods market looks set to slow down this year for the first time since the global financial crisis, according to Bain & Company’s annual luxury goods report, as macroeconomic uncertainty and a marked slowdown in China’s economy weigh on consumer spending.
It’s the first time in 15 years (excluding Covid-19 lockdowns) that demand for personal luxury goods, including clothing, luggage, jewelry and cosmetics, has slowed, according to Wednesday’s survey results.
The report shows that rising costs and declining customer loyalty will cause consumers to avoid high-end brands in 2024, which will weaken company profits and may cause the industry to shrink by 2% for the full year.
The report pointed out that overall luxury spending is expected to be flat year-on-year in 2024, at about 1.5 trillion euros ($1.59 billion), despite small increases in areas such as automobiles, travel and fine wine.
China’s weakness has heavy impact
Global economic uncertainty and inflationary pressure have become common themes in this year’s luxury brand profit reports, among which LVMH, Burberry and Gucci owner dry The errors were repeated across all published earnings.
But falling demand in China’s main market is proving particularly worrisome for the industry as the economy has struggled to rebound from the Covid-19-era slowdown.
Even the owner of Cartier Richemont GroupLast week, it was an outlier in a broader sector downturn report Sales fell 1% in the first half of the fiscal year, partly due to weak demand in China.
Bain & Company noted: “Mainland China’s economy slowed sharply as consumer confidence fell and domestic spending fell, further deteriorating throughout the year.”
The report said that the continued weakness in the Chinese market may further put pressure on the luxury goods industry in 2025, but the report called this a lower probability outcome and pointed out that there will be a gradual recovery in the second half of next year as it is more ” “Realistic situation”.
This year, demand for luxury goods in Europe and the United States has shown signs of gradual improvement month-on-month, with Japan leading the way due to favorable exchange rates. As a result, the report predicts that the industry will grow slightly next year, barring any major economic headwinds.
room to grow
The report also points to rays of hope for the sector, with luxury cars and hospitality, fine wine and gourmet food all seeing growth this year.
Luxury travel in particular has become a growth area, with consumers increasingly shifting their spending towards experiences, social events and wellness.
Sales of small personal items such as eyeglasses and beauty products also rose as shoppers opted for “small indulgences” rather than larger purchases, the report said.
Nonetheless, the report points out that luxury brands need to do more to attract and retain an increasingly fickle consumer base, especially among the young Generation Z group born between 1997 and 2012.
“In the past two years, 50 million luxury consumers have either opted out of the luxury market or been forced to exit. This is a signal to brands that it is time to recalibrate their value proposition.” Bain & Company is the author of the study Main author.
“To win back customers, especially younger customers, brands need to lead with creativity and expand conversation topics. At the same time, they must put top customers front and center, surprising and delighting them while rediscovering one-on-ones. of interpersonal interaction.
