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How 2021 Reshaped the Luxury Market

Bain’s annual market study shows an uneven recovery with new brands, regions and distribution channels taking the lead. Some of these shifts are likely to stick.
An influencer snaps a photo during the reopening of LVMH's renovated Samaritaine department store in Paris. The city's share of luxury sales slipped in 2021. Getty.
An influencer snaps a photo during the reopening of LVMH's renovated Samaritaine department store in Paris. The city's share of luxury sales slipped in 2021. Getty.

Sales of personal luxury goods enjoyed a “V-shaped recovery” in 2021, growing a steep 29 percent to €283 billion ($327 billion) after last year’s unprecedented dip, according to a report by consultancy Bain in partnership with Italian luxury consortium Altagamma.

The industry is expected to finish the year with sales in line with 2019′s pre-pandemic levels, shrinking by 1 percent or growing by up to 2 percent depending on performance during the holiday season. But the spoils of the recovery have been shared unevenly among brands and regions, as the pandemic accelerated on-going shifts in the market as well as sparking new trends, some of which are expected to stick.

The Market Is More Polarised Than Ever

The overall luxury market will most likely close the year up by 1 percent over pre-pandemic levels, but the gap between the strongest and weakest brands is wide.

Among 300 brands included in the study, only around 40 percent have returned to growth versus 2019 performance. Another 25 percent of brands remain down slightly versus pre-pandemic levels, while 35 percent are still “significantly” behind, the report’s author Claudia d’Arpizio said.

Though some particularly relevant small brands have surged since the pandemic, bigger brands are the ones scooping up most of the growth, she added. Brands that are suffering most tend to have a higher exposure to apparel, particularly formalwear or occasionwear, as opposed to the shoes and accessories categories, which were already driving the industry’s growth before the pandemic.

First-Time Buyers Are Even More Critical

The coronavirus pandemic caused significant hardship for many people, including record levels of global unemployment last year. Meanwhile, even those who escaped the pandemic economically unscathed had fewer activities for which to dress up, as travel, weddings and other events returned only gradually and telework remained prevalent in many geographies.

Those headwinds haven’t stopped luxury brands from recruiting first-time buyers at a rapid pace, however, Bain said. Amid significant wealth creation for some top earners, and as buyers had fewer opportunities to spend money on experiences like restaurants and travel, more new customers flooded the industry than ever. In 2021, 30 percent of clients were ones who had entered the luxury market since 2019, Bain found.

High volumes of new customers coming into the industry are likely to continue, and could reinforce the dominance of the strongest players who can afford to make bold moves to seduce potential clients. ”There’s a big cost attached to acquisition,” D’Arpizio said. “This is an industry that’s moving to more and more heavy marketing activations.”

The Rise of Suburbs, Resorts and Second-Tier Cities

The concentration of the luxury industry’s sales in a few top cities like New York, London and Paris has slipped amid a slow recovery in international tourism, and as wealthy clients spend more time in, or even moved to, second homes.

In the US, second-tier cities like Denver, Austin and Miami saw significant growth. Reaching customers through pop-up shops and activations in posh vacation destinations like the Hamptons and Napa Valley became a priority for luxury brands, too.

In China, travel restrictions saw consumers continuing to shop in their home cities or in domestic duty-free hubs like Hainan, replacing European shopping trips and jaunts to Hong Kong.

The share of the top 10 luxury cities fell from from 35 percent of sales in 2019 to 25-30 percent in 2021. Bain expects that share to remain stable next year as brands continue reaching out to clients in smaller cities, offsetting the expected recovery in international tourism.

The Americas Became the Fastest-Growing Region

Efforts by brands to reach wealthy Americans in smaller cities and through e-commerce combined with a solid economic recovery in the US pushed sales up by 41 percent this year, making the Americas the fastest-growing region according to Bain. Sales also picked up sharply in Brazil, the report found.

Online Luxury Continues to Climb

In 2021, online luxury sales grew by 27 percent to €62 billion (about $71 billion), Bain said. That’s 2.5 times higher than 2019 levels, with the share of the market stable at 22 percent despite the reopening of physical stores that spent much of 2020 shuttered due to coronavirus precautions. The consultancy expects the share of online sales to keep growing, reaching 28 to 30 percent of the market by 2025.

Resale’s Rapid Climb

The market for secondhand luxury is “booming,” Bain found, with sales rising 17 percent to €33 billion this year. The secondhand market represents an opportunity for luxury companies to signal a commitment to sustainability and gather data on a fast-growing swath of consumers. But challenges remain for brands and fashion platforms to get involved, including the operational complexity of gathering and authenticating stock, and concerns about potential cannibalisation of new-product consumers.

China’s surge is in question

This year saw the Chinese Communist Party make bold commitments to promoting “common prosperity” and curbing what leaders see as “excessive incomes” in the face of growing inequality. That news sent luxury company’s shares into a tailspin as investors worried about potential problems for selling logo-driven propositions in the key market.

The policy changes could actually be supportive to luxury brands’ base of “aspirational” middle-class consumers, who may upgrade the products they buy more quickly, Bain said. But the wealthiest clients may delay spending amid the current uncertainty.

While luxury sales in Mainland China continued to surge this year and have roughly doubled since the pandemic, it still isn’t making up for all of the shopping Chinese consumers used to do abroad. Sales to Chinese consumers worldwide remain down by between 20 and 25 percent versus 2019, Bain estimated.

Related Articles:

The Future of Fashion Resale Report — BoF Insights

Hainan: China’s Luxury Bright Spot

Inside Farfetch’s Bid to Dominate Luxury E-Commerce

LVMH’s Growth Slows Down as Post-Lockdown Comparisons

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