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Luxury Goods Sales Forecast to Decline Amid Economic Challenges
MILAN (Reuters) – According to a new report by Bain & Company, the market for personal luxury goods is projected to experience a 2% decline this year, marking one of the industry’s weakest performance periods on record. Factors such as rising prices and ongoing economic uncertainty have significantly reduced the number of consumers engaging in luxury purchases.
The comprehensive analysis reveals that China, once a key engine for growth, is expected to see sales plummet by 20-22%. This downturn follows years of robust demand driven by a burgeoning affluent middle class. Bain’s report underscores that these sales forecasts have been adjusted to account for fluctuations in currency.
“This marks the first instance of a decline in the personal luxury goods sector since the 2008-09 economic crises, aside from the pandemic’s impact,” stated Federica Levato, a partner at Bain, in comments to Reuters. The findings, released recently, may intensify concerns among investors, suggesting that the current slump affecting major brands like LVMH and Kering could persist longer and be more profound than previously suspected.
When examining global sales of luxury personal items—which include clothing, accessories, and beauty products—Bain predicts stable sales at constant exchange rates for the upcoming holiday season, although performance in China remains lackluster.
The shift in branding strategies towards a higher pricing tier, alongside waning consumer confidence fueled by geopolitical tensions, China’s economic struggles, and various global elections, has prompted many potential buyers, particularly younger demographics, to delay or abandon luxury purchases altogether.
“In the past two years, the luxury consumer demographic has shrunk by 50 million, leaving approximately 400 million potential consumers,” Levato noted.
Future growth in this market will largely depend on the strategic initiatives brands opt to adopt, especially regarding pricing tactics, Levato added. Evidence suggests that consumers are gravitating towards outlet channels as they seek better value, indicating that premium pricing is becoming a barrier to purchase.
Looking ahead, Bain forecasts that the personal luxury goods sector could see growth of approximately 0% to 4% at constant exchange rates by 2025, buoyed primarily by sales in Europe and the Americas. However, a recovery in the Chinese market is anticipated only in the latter half of the year.
Levato also remarked that Donald Trump’s recent victory in the U.S. presidential election has alleviated one area of uncertainty. In addition, potential reductions in interest rates and taxes could spur increased spending among American consumers.
Interestingly, while personal luxury goods sales are faltering, expenditure on luxury experiences—including hospitality and dining—is expected to rise this year, indicating a shifting focus in consumer preferences.
($1 = 0.9409 euros)
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