Luxury industry set to reach $1.6 trillion in sales this year – Glossy

According to a November study by the management consultancy Bain and the Italian luxury association Altagamma, the global luxury market is projected to reach $1.6 trillion in 2023 sales, marking an 8-10% increase from 2022. Growth is set to outpace that of the last few years, with sales surpassing pre-pandemic levels.

There is a question mark regarding the profitability of brands, both this year and next year, said Federica Levato, senior partner and EMEA leader of fashion and luxury at Bain, and co-author of the annual Luxury Goods Worldwide Market Study. Theres increased attention being placed on scenario-based budgeting for next year. So far, brands have been very good at absorbing the delta costs of economic impacts in their prices and gross margins. But with the consolidating growth rates, the cost base is increasing.

The report, which came out on November 14, is based on macroeconomic data like GDP and the consumer confidence index, as well as Bains and Altagammas latest luxury industry forecasts. It also factors luxury industry players trading performance, annual reports, quarterly results and analyst reports, as well as findings from 100 expert interviews.

The European luxury market is expected to grow 7% to $111 billion in 2023, as a rebound in tourism offsets weakening in local consumer spending, the report found. Local tourist spending has surpassed pre-pandemic levels, driven by the sales of full-price products. In the U.K., the luxury market faces setbacks due to the removal of tax-free shopping in 2020, as well as a lack of tourism. According to a study from March by the Association of Leading Visitor Attractions, visits to British attractions in 2022 increased 69% compared to 2021, but the attractions saw 37.8 million fewer visits compared to 2019. For 2024, the report predicts GDP growth of 1.4% in the U.K.

The U.S. luxury market continues to slow down due to a number of macroeconomic factors, including inflation, student loan repayments, a weaker luxury ecosystem in the U.S., a declining consumer demand for department stores and a lack of post-lockdown savings. GDP growth is forecasted to grow 1.5% in 2024. The U.S. has gained traction as a luxury market, going from $88 billion in sales in 2019 to $110 billion this year. As a result, many brands are focusing on their top-spending customers.

Brands are focusing on top-customer strategies and developing dedicated value propositions, products and experiences for that audience, said Levato. Meanwhile, the entry-level or core customer can feel a bit left behind. [Retailers] dont have a dedicated customer experience for that customer.

And while Gen Z isnt driving significant sales, the demo is bringing influence. In an economic downturn, Gen Z doesnt have big purchasing power, but millennials and Gen X do, said Levato. But Gen Z is by far the generation that is influencing the other generations the most, in terms of tastes, value systems and cultural change. Brands who engage in that dialogue will win out.

Top-selling luxury categories are shifting, from small leather goods to others. Jewelry is set to reach $32.7 billion in market value in 2023. A big driver is the fine jewelry category, which is proving to be an investment proposition for high-net-worth customers, along with ready-to-wear investment pieces. For its part, Tiffany & Co. re-opened its flagship on NYCs Fifth Avenue in May after a reported $70 million renovation. The goal was to attract more high-net-worth customers and reintroduce customers to Tiffany & Co.s retail proposition, according to the company.

The premium beauty market is also seeing growth, which is being driven by the lipstick effect among aspirational customers in the Americas and Europe. Prada, for one, re-launched its beauty collection in July to focus on design-led palettes and logoed lip products.

Overall, brands are focusing on their own channels to reach customers, as multi-brand retailers struggle to define their value proposition and customers increasingly seek out branded physical experiences. Multi-brand retailer Showfields, for one, filed for bankruptcy in October after closing its Manhattan store. As time goes on, DTC is becoming less about e-commerce and more about a combination of physical and digital touchpoints.

We talk about trans-human retail a mixture of physical retail enabled by technologies and digital touchpoints that enhance the customer experience as a whole, said Levato. Finding a new and relevant role for the multi-brand channel needs to start from the brands themselves, because its also helpful for the brand to enhance the value proposition there for the customer.

According to the report, online and mono-brand channels are expected to account for two-thirds of the entire luxury market by 2030. The brands that are poised to win in the long term are leading on sustainability and embracing technology, said Levato.

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Luxury industry set to reach $1.6 trillion in sales this year - Glossy