True to form
A new Boston Consulting Group report offers grounds for optimism about the global luxury market. It says high-end consumers in a category it calls ‘True Luxury’ are spending €780 billion per year on personal luxury items and experiences.
Change is inevitable and it’s usually best to face up to it; in an essay in 1950, Nobel Prize-winning writer Octavio Paz went so far as to describe the fear of change as a poison. More recently, in July this year, the president of Altagamma, Matteo Lunelli, who runs sparkling wine company Cantine Ferrari, whose products are as far away from poison as it is possible to be, also had change on his mind. Speaking at an event in Milan called Altagamma Consumer & Retail Insight, Mr Lunelli observed that consumer demands have changed and that the geopolitical situation is now having a greater impact on the economy than it did in the past.
Altagamma promotes high-end leathergoods brands and other luxury companies. Mr Lunelli views changes in consumer demands as something member companies need to take note of and he suggests that demands have changed because consumer values have changed. He says this shift has manifested itself in the desire among luxury consumers now to have the same high levels of service they receive from luxury brands in stores when they shop online as well.
“Consumers want one-to-one treatment in stores and online,” the Altagamma president says. “Our brands have always been able to offer impeccable service in their stores, but not always online.” He thinks investment in digital skills, especially among smaller companies, will help resolve this and provide a new way for Altagamma members to stand out.
He insists that high-end brands will continue to enjoy success because they will be able to keep garnering value from their craftsmanship and savoir-faire. The added benefit from this of companies bringing new generation, exceptionally skilled artisans into the world of work, and preserving traditional know-how will also continue. “This ability to develop talent and preserve our knowledge of how to make beautiful things is the basis of the excellence we can offer in Italy,” he says.
Personal interest
Professional services firm Boston Consulting Group (BCG) presented the findings from a report called True Luxury Global Consumer Insight 2023 at the Altagamma event. BCG senior partners Filippo Bianchi and Guia Ricci, made it clear immediately that they expect growth compared to 2022. Their base scenario indicates growth of between 7% and 9% in the global personal luxury market this year compared to 2022. This would include growth of 15% year on year in the market in China.
They also present a more optimistic projection of overall growth of between 11% and 13% for the year, which they think could come about if the “strong restart” the market has seen in China in the early part of 2023 continues for the rest of the year. This would result in growth of 20% for the year in China. Their more optimistic scenario also includes resilience in the market in the US and in the European Union in the second half of this year.
BCG compiled its report by means of a survey of 12,000 high net-worth consumers, including 2,000 in China and 2,000 in the US. This is the ninth year in which it has conducted this exercise. It estimates that there are 370 million consumers of luxury goods around the world, but that only 20 million of them are in the True Luxury category. On average, this group of 20 million people spend €39,000 each on personal luxury items and experiences. This does not include cars, phones or watches. It gives a value of €780 billion per year for the True Luxury market.
Enthusiasm in China
Growth in China is at the top of the list of trends the BCG team has observed, with increases taking the market there higher than it was pre-covid. “China respondents to our surveys are very enthusiastic,” Guia Ricci says. “There is a post-covid euphoria.” However, the Insight report also highlights a change in the playbook in the Chinese market. Ms Ricci points to something of a relocalisation going on, which means a focus among high-end consumers on shopping in the domestic market rather than overseas. Made in Italy matters across the whole market, including in China, and will continue to have a key role, the report makes clear, but almost 50% of Chinese consumers want to shop for luxury goods online. As Matteo Lunelli indicates, brands will need to work hard to offer these shoppers a high level of service to prevent disappointment.
A related trend that the report picks out is that the fastest growing part of the market for Italian luxury brands is the VIC, the very important customer. This is another way of describing True Luxury consumers, Guia Ricci concedes, but the main point is that brands will do well to keep fine-tuning their approach to these, their best customers. “Brands’ approach should be to become more and more sophisticated in their dealings with VICs,” she says, “ever more attentive towards them to maximise the value of doing business with these consumers.”
On the subject of sustainability, she points out that the markets for renting luxury goods and for buying them second hand are becoming increasingly important for consumers and the study notes an increase in high-end companies’ willingness to claim a piece of this non-new action.
A final point she makes is that scale matters more than ever in the luxury market. A scaled-up approach allows brands “to have their own voices”, Ms Ricci explains. And for small and medium brands, her advice is that they search for “alternative ways to stay relevant, perhaps through their creativity and innovation”. These are good ways for small companies to be disruptive, she suggests.
Dominant dozen
The report signals the 12 biggest markets for luxury brands, the first 11 of which are the US, China, Japan, India, Germany, the UK, France, Italy, South Korea, Brazil and the United Arab Emirates. For Filippo Bianchi, country number 12 on the list, Saudi Arabia, represents something of “a new frontier” for the market, with high levels of growth in the last 12 or 18 months. BCG’s calculation is that the personal luxury market there was worth €3 billion in 2022 in terms of domestic spend, but that Saudi Arabian consumers spent double that on luxury goods.
He predicts that both of those values will double between now and 2030 to reach a domestic spend of €6 billion and a total spend from Saudi shoppers of €12 billion per year. This will give Saudi Arabia a similar market share to those of the major European players, he says, making it as important a market as, say, Germany. “Customers in Saudi Arabia are very sophisticated and well travelled,” Mr Bianchi explains, “and many of them are digital natives and confident about spending money. Around 60% of the population is under the age of 30.” He points out that there are plans in place for extensive retail development there, with something like 500,000 square-metres in development in the region around the capital, Riyadh, alone that will be devoted to luxury retail. “New malls are at different stages of development,” he says. “There are going to be physical retail opportunities there that simply don’t exist today. They are up for grabs.”
A shopping area in Riyadh. Boston Consulting Group describes Saudi Arabia as a new frontier for luxury brands. Credit: Shutterstock/The Road Provides
