Bain & Company and Altagamma’s 2023 spring luxury study projected that the personal luxury goods market would grow 5 percent to 12 percent in 2023, following a record year in 2022. The gains come despite moderate luxury shopping in the U.S. due to economic uncertainties.

According to the study, the personal luxury goods market posted a record year in 2022, reaching a market value of €345 billion ($376 bn), despite geopolitical tensions and macroeconomic uncertainty. The momentum continued into the first quarter of 2023, achieving 9 percent to 11 percent growth over 2022; however, nuances across countries continued.

The study attributes the growth in Q123 to several factors, including the gradual decrease of hyperinflation, recovering the confidence of local consumers in Europe, the reopening of China and lifting of its zero-COVID policy restrictions before Chinese New Year shopping, and the positive momentum in Japan and Southeast Asia, bolstered by intraregional tourism. The picture is nuanced, however, across countries. A slowdown is expected in the U.S. due to consumer caution due to a potential recession.

“The luxury industry is experiencing a new phase after its post-pandemic growth, with renewed drivers of resilience establishing winners and losers,” said Claudia D’Arpizio, a Bain & Company partner and leader of Bain’s Global Luxury Goods and Fashion practice, the lead author of the study. “Brands who want to succeed need to focus holistically on consumers, balance their exposure across geographies, offer a high-value proposition with elevated entry clienteling and experientiality at scale, and push on icons, timeless, and statement pieces.”

Regional Perspectives: The U.S. Slows As Europe Rises And Asia Reshuffles
According to Bain’s findings, despite holding onto about $900 billion in unspent savings, U.S. consumers have refrained from spending due to economic uncertainties and the end of COVID relief funding. Top U.S. customers are holding up yet partially shifting their spending abroad as price differentials widen, and aspirational customers are spending less. In this context, U.S. luxury consumers have focused their purchases on statement pieces across categories and new formal and occasion wear.

Europe started the year strong, with sustained performance in the first quarter, mainly due to top spenders. The region, however, is awaiting “a moment of truth,” which could put pressure on its resilience in the summer as locals face the end of their “luxury shopping haven” — the long tail of U.S. and Middle Eastern tourists in the first half of the year is expected to slow down. Chinese tourists have returned to Europe in the last few months, with a solid return expected later in the year.

The market in Mainland China, which saw Q1 growth, is expected to rise again in 2023, with some, but not all, brands back to 2021 levels. In the meantime, the Asian market is experiencing a reshuffling with old and new luxury magnets. 

Hong Kong and Macau posted a sharp acceleration as primary destinations for Chinese tourism since the country reopened, with additional tailwinds from government policies (about €5 billion market value in 2022). Southeast Asia continued its growth path, sustained by an influx of Russian tourist spending, the first arrivals of Chinese consumers and a strong interest for jewelry and watches (about €12 billion market value in 2022). On the other hand, South Korea has slowed down with a rebalancing of local spending on purchases abroad and travel retail accelerating due to inflows from Southeast Asia and despite limited Chinese arrivals so far (about €21 billion market value in 2022). Japan is the rising star, with local customers keeping up their spending patterns and growth coming from inbound tourists interested in buying best-seller accessories, including the first signs of Chinese arrivals (about €24 billion market value in 2022).

Top Customers Remain Voracious Across Luxury Categories
Bain and Altagamma’s study shows a cross-category “quest for elevation,” driven by iconic and uber-lux pieces, with customers looking for “less but better” purchases. 

Top performing categories include watches (iconic models with a few giant brands driving growth) and jewelry, with uber-lux pieces driving growth. Iconic bags continue to drive spending, perceived as valuable assets. Shoes are booming in Asia while slowing down in the West, transcending beyond sneakers. In beauty, the study shows growth in perfumes, fueled by niche offerings and the recovery of duty-free, while makeup and skincare maintain positive trajectories.

In terms of channels, experientiality and travel retail are regaining their shine, tapping into other luxury territories. Travel retail is recovering after a long-awaited rebound due to dynamism from Southeast Asia and Japan. The mono-brand category continues its solid growth from 2022, fueled by an ongoing interest in in-store experiences and consumer flow shifts. Direct retail also remains on a solid growth path, increasingly boosted by the dawn of tech-enabled consumers and omnichannel 3.0-enabled sales.

Looking Ahead: Expectations For 2023 And Beyond
The luxury market is poised for growth to between €360 and €380 billion in 2023, up from €345 billion in 2022. Bain-Altagamma analysis sets out two scenarios:

  • A positive scenario shows a solid growth path in 2023, driven by China’s recovery and sustained growth from Europe and the Americas, although stabilizing, with sales growth in the personal luxury goods market projected to be between 9 and 12 percent versus 2022.
  • A realistic scenario shows overall growth more severely impacted by a slowdown in mature markets, potentially adversely influencing luxury customer spending, and a slower recovery in China. In this scenario, sales growth in the personal luxury goods market is expected to be between 5 and 8 percent versus 2022.

Looking further out to 2030, the personal luxury goods market will likely experience growth driven by solid market fundamentals, boosting its value to between €530 and €570 billion, around 2.5 times the size of the 2020 luxury market.

Key Challenges And Opportunities Ahead
In response to regulatory ESG pressures, luxury brands over the next three years could see a pressing focus on value chain decarbonization, known as Scope 3 emissions, requiring them to decouple expected business growth from the absolute growth of emissions.

Generative AI will impact all the luxury value chain steps, from distribution to creativity, yet only partially, as it revolutionizes business enablers across all functions.

“Luxury is entering the ‘literally me’ era, marked by a desire to show ourselves moving beyond purely aspirational items, valuing uniqueness over status,” said Federica Levato, partner at Bain & Company and leader of the firm’s EMEA Luxury Goods and Fashion practice, co-author of the report. “Meanwhile, timeless, iconic pieces remain coveted due to their scarcity and continuous appreciation; this means many newcomers are overperforming, but they are competing in a world of giants who are also experiencing much success. To remain relevant in the long run, brands will need to continue to channel an insurgent mindset, championing hero products and their founders’ visions while also tooling up to sustain long-term growth by getting the business fundamentals right.”

Photo courtesy Ralph Lauren