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Luxury goods market to expand by 4% in 2010 - Bain

Apr '10
Building on strong momentum from a healthy 2009 holiday shopping season, global luxury goods industry revenues will increase 4% (using constant exchange rates) from 153 million euro in 2009 to a projected 158 million euro for 2010; this was announced today by Bain & Company at a Fondazione Altagamma (Italian luxury goods industry trade association) conference, where the global business consulting firm released the Spring 2010 biannual update of its 'Luxury Goods Worldwide Market Study.'

The positive outlook for 2010 is a sharp reversal from the year-over-year 8% decline in revenues that the global luxury goods industry experienced in 2009. Bain estimates that the projected full-year increase of 4% will result from a particularly strong growth spurt of 5-10% in the first half of the year, followed by a second half increase of zero to five percent. Strong like-for-like revenue growth in luxury retail stores ranging from 15% -20%, strengthening fundamentals in GDP globally, a return to international travel and a resurgence in consumer confidence have all converged to create a positive climate for growth, say the study's authors.

Perhaps the most important lesson from the economic crisis is that bigger brands were better equipped to weather and respond. Only 2% of the 220 brands studied saw growth over 5% in 2009, accounting for 10% of the overall market. Brands that declined by more than 15% accounted for half of the brands studied, yet realized only 20% of overall sales. “This polarization creates fertile conditions for market concentration,” said Claudia D'Arpizio, a Bain partner in Milan and lead Bain author of the study. “As megabrands capture more market share, 2010 is likely to be a year when the search for capital triggers more luxury M&A and IPOs.”

This year's luxury rebound is lifting all of the sector's core product categories. Apparel and watches/jewelry are forecast to grow 4% for the year, with accessories, shoes and leather to increase 5%. Perfume and cosmetics are forecast to grow at 2% for 2010. “We see the temporary phenomena of 'luxury shame' fading in mature markets, with luxury appeal returning amongst loyal customers,” added D'Arpizio.

Looking across geographies, China and Asia (excluding Japan) continue to drive growth for the global industry, with 15% and 10% forecasted growth respectively. For the Americas, 4% growth is forecast, and 3% for Europe, a critical turnaround in luxury's core market regions. Only Japan will see further decline, by 3% versus 2009.

"The new forecast is quite encouraging” said Santo Versace, Chairman of Fondazione Altagamma, “In the midst of the worst crisis to hit the sector, luxury manufacturers have shown an excellent reactive capacity, recovering faster and better than many other industries. The business challenges brought on by the 'Great Recession' actually propelled high-end luxury companies to focus deeply on their customers, concentrate on their core business, and elevate their product design and innovation to a new level."

“After three punishing quarters, shoppers started coming back into the stores, and better yet, they are once again buying,” said Bain's D'Arpizio. “A resumption of luxury goods purchasing has allowed retailers to work through their inventories. Destocking is over. The luxury goods market is once again poised for growth.”

Bain & Co.

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