After years of strong
growth, the luxury goods
industry has entered a
phase of consolidation.
Luxury goods companies
recovered sharply from the
crisis, with demand fuelled by
a booming Chinese appetite. In
just over a decade, China became
the largest customer of luxury,
representing more than 30% of
purchases, versus 1% in 2001.
However, this stopped in 2012 on
China's crackdown on gift giving,
as well as various adverse events
and new consumption patterns.
The industry has not yet fully
recovered and some specialists
and market observers believe the
luxury business model is broken.
Are people throwing the
baby out with the bath water?
Probably, as highlighted by Q3
results from LVMH , the industry
bellwether. LVMH delivered a
solid performance in a volatile
environment, beating organic
growth expectations by 2%. Also,
LVMH said demand from China
increased at a double-digit rate,
versus flat in H1 2016.
Long-term luxury growth is still
strong – supported by innovation,
more online penetration and
supportive demographics. Global
middle class spending could grow
at a CAGR of 5% over 2009-2030,
per the OECD, driven by Asian
middle class growth of 9% CAGR.
We recently travelled to
Asia and no company we met
said the current downturn was
structural, despite the shift in
Chinese consumption – buying
experiences versus goods. Also,
brands and distributors flagged
the reservoir of emerging middleclass
shoppers was significant.
Is luxury dead? Is it going to
structurally underperform the
global economy? Our opinion
is it faces a cyclical period of
consolidation. Strong brands
should navigate through an
adjustment of product and
distribution strategies, supported
by significantly stronger balance
sheets than during the crisis.