Luxury Growth Weakest Since 2009 Amid Geopolitical Turmoil: Bain

Worldwide luxury-goods sales could increase this year at the slowest pace since 2009 as spending falls for the first time in China and turmoil in Hong Kong and Russia curbs tourist consumption, according to Bain & Co.

Global sales of personal luxury items from handbags to watches will rise 2 percent to 223 billion euros ($282 billion), Bain estimated in a report today. That would be the weakest growth since sales fell five years ago. Revenue will rise 5 percent when excluding currency swings, Bain said.

Britain’s Burberry Group Plc, the maker of $1,600 trench coats, said today that wholesale revenue will fall in the second half, while handbag maker Mulberry Group Plc said full-year earnings would be significantly below estimates. LVMH Moet Hennessy Louis Vuitton SA is due to report third-quarter sales after European markets close.

Fewer Chinese tourists are shopping in Hong Kong because of pro-democracy protests, while fighting in Ukraine and resulting sanctions have depressed Russian spending in Europe, dragging down earnings of luxury-goods makers including LVMH, the world’s biggest. Airline disasters, unseasonal weather patterns, and a sales tax increase in Japan have also affected demand, Bain said.

Low consumer confidence is “driven by overall uncertainty about the future,” the researcher said.

Luxury sales will fall 2 percent in China on a reported basis this year as the government widens a clampdown on lavish spending and concern over a real-estate bubble weighs on spending in smaller cities, Bain said. Russian consumption is on course to slump 18 percent, the consultant predicts. The Americas and the Middle East will be the only regions to expand faster than the global industry rate, each rising 3 percent, according to Bain.

Handbag Prices

Claudia D’Arpizio, the Bain partner who led the study, said she expects a rebound in Hong Kong from the fourth quarter, though the Russian situation may continue to drag on demand in 2015. D’Arpizio is “super-bullish” on China in the long run, she said in a phone interview.

Shoes are outperforming leather goods for the first time since 2007 as shoppers seek a cheaper way of making a statement, Bain said. Handbag prices are between 60 percent and 130 percent higher than in 2008, helping spark a vibrant second-hand market, Bain estimates.

Revenue from discounted personal luxury-goods, also known as off-price sales, will have expanded an average 26 percent a year between 2011 and 2014 to 19.1 billion euros, Bain predicted, adding that demand is booming in China.

“Regardless of their spending power, Chinese are paying more attention to price and price differentials, looking for saving opportunities,” Bain said.

The luxury-goods market will expand to between 250 billion euros and 265 billion euros by 2017, Bain estimates.

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