The luxury market could earn 1.22 trillion euros in 2025, if the pace of growth is maintained from 2021
The onset of the pandemic caused the luxury market to retreat around the world. Companies in the area shrank 40% in 2020, from a turnover of 966 billion euros to 581 billion euros, compared to 2019. Personal luxury fell 22% and experience, the most affected by restrictions, practically by half . In 2021, the market started to recover and the Boston Consulting Group (BCG) projects growth between 41% to 50%, compared to 2020.
In Brazil, however, the movement must be opposite. Although the consumer stopped buying abroad at an initial moment and moved the local brands, now the stores must slow down sales.
“There is a perspective in the world of luxury consumption repatriation: people stop shopping outside their countries”, says Flavia Gemignani, director of BCG and specialist in retail and consumption. “Brazil is the only one, of the 10 countries we surveyed, that has the opposite trend.”
In 2020 and part of 2021, the sales of luxury mall tenants increased in the country. “It was very associated with consumption that, before, was made abroad, now being made within Brazil,” she says. Domestic luxury brands also benefited. The rise of the dollar made its prices, when compared to foreign ones, become more affordable.
In addition, says Gemignani, international brands had problems with imports and lack of products in the pandemic. But foreign brands took advantage of the wave. “There was a question of mismatch in the price of the dollar from when some products were imported and how much the currency came to be worth over the months,” she says. In addition, shopkeepers also held their margins so as not to pass on the exchange rate increase. “I dare say that there was an increase in sales volume,” he says. “The brands held the prices and explored the payment in installments.”
Gemignani also states that the presence of branches of foreign brands in the national territory serves as a marketing action. “The calculation is more or less like this: one sale here, for three sales abroad”, he says. The logic is that the consumer starts to relate and create desire for the brand, when he sees it in the local mall, and buys it more when he travels. In the pandemic, however, that perspective was lost. “When you remove this link (with sales in another country), to prove viable, these stores had to have an increase in sales volume”, he says.
In the world
According to the report, the recovery of the luxury segment in the world may not be enough to return to levels before the pandemic, still in 2021. Even with the growth, the market should be between 10% to 15% below the result of 2019 , with a drop of up to 5% in personal luxury and 15% to 20% in experience. Recovery should only take place in 2022, with growth of 5% compared to 2019, which would represent more than 1 trillion euros in revenue. BCG also projects that the luxury market could earn 1.22 trillion euros in 2025, if the pace of growth is maintained from 2021 onwards.
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One of the engines of this recovery are millennials and Generation Z. It is the population that most believes in the economy’s recovery: 53% say it will be quick, against 20% of other generations. Younger age groups accounted for 39% of luxury consumption in 2019. In 2025, it will be at least 60%.
BCG also credits the growth to what it calls the rebound effect: the desire to consume what was suppressed during the pandemic. For the consultancy, China and the United States will lead the resumption. Gemignani also claims that the access ranges for luxury consumption should only grow again with a real economic recovery that allows people from lower social classes to buy aspirational products. According to the survey, the group of consumers most resilient to the crisis was the one with income above 20,000 euros a year, who spent an average of 17% more in 2020 – around 70 billion euros against 60 billion euros in 2019 .
For the study, 12 thousand consumers from the 10 main luxury markets in the world were consulted between March and April 2021 – United States, China, Japan, South Korea, Brazil, United Kingdom, France, Germany, Italy and Russia – with an average expense of around 33 thousand euros per year. The study divided the market into two main categories: personal luxury (clothing, accessories, jewelry, watches, perfumes and cosmetics) and experience (hotels, restaurants, wines and spirits).
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