By Eurasia Business News – November 23, 2020
Luxury retail shop – Photo credit : pexels
China will become the largest market for luxury goods by 2025, while Chinese buyers will account for almost half of the world’s spending on luxury goods, reported the international consulting company Bain & Company.
Mainland China has been the only region globally to end the year on a positive note, with sales of luxury goods growing by 45 % at current exchange rates to reach EUR 44 billion, as restrictions on international tourism have led more Chinese consumers to shop in their home country.
Domestic consumption has increased across all channels, categories, price ranges and across all generations. The Chinese market is made of hundreds of millions of young, digitally-native consumers with sufficient income for luxury goods.
International luxury goods companies are stepping up efforts to engage with Chinese buyers. Earlier in November, Switzerland’s Richemont and China’s Alibaba invested $ 1.1 billion in online trading platform Farfetch, which will allow it to access 757 million customers of the Chinese tech giant.
Meanwhile, despite a robust market recovery in China, consultants of Bain expect global luxury goods sales to fall 23% to € 217 billion this year while companies’ operating profits will decline 60%. This will be the largest decline since 2009. The market can recover only in 2021.
The luxury market as a whole, which includes both luxury goods and private jets, yachts, fine wines and gourmet food, has declined at the same rate and is currently valued at around EUR 1 trillion.
Europe has borne the brunt of a collapse in global tourism. While local consumption remains, regional consumption fell by 36 % at current exchange rates to EUR 57 billion.
By the end of 2020, the luxury segment of the Russian fashion market would decline by 20-25%, less than the mainstream and low-price segments, reported the Moscow based Fashion Consulting Group (FCG).
The crisis had less impact on North and South America – sales fell by 27% to EUR 62 billion, according to Bai & Company.
The consulting company expects the market recovery to pick up pace over the next three years, with the market returning to 2019 levels by the end of 2022 or early 2023, depending on macroeconomic conditions, the development of the pandemic and the rate of resumption of global tourism.
After the second quarter of 2020, which was the worst ever for the luxury goods market because of national lockdowns in many countries, there were signs of a recovery in the third quarter.
Sales of the French fashion house Hermes International began to grow in the third quarter on the back of strong momentum in Asia and increased activity across its global store network. Sales of the French luxury-goods maker rose 4.2% at current exchange rates to €1.80 billion from €1.73 billion in the year-ago period, reported S&P Global.
In October, sales of the British luxury company Burberry also began to grow. The latter said the recovery is underway as the company attracts new and younger buyers.
Sales are expected to fall by 10% in the fourth quarter, although the decline could be greater depending on the pandemic and the introduction of additional restrictions.
In spite of the lockdowns and the fall of global tourism impacting physical retail, online luxury goods sales skyrocketed in 2020, accounting for about 23% of total spending, up from 12% in 2019.
Analysts predict that online shopping will become the main channel for buying luxury goods by 2025. China and other emerging economies such as Russia and India would bring the best results.
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