Global consumption of personal luxury goods – 2024 current trend
International geopolitical wars, macroeconomic uncertainty, still some inflation in certain countries, high interest rates, cost of energy, price increases and a decline in the purchasing power of middle-high end consumers – reduce the expected moderate market growth for 2024.
According to a Bay survey the trend by region in personal luxury good markets are the following. In Europe, international tourists will compensate for weaker domestic demand and help support the market, which is expected to grow by 4%. Thanks to visa restrictions being lifted and travel firmly back on the agenda, Chinese tourists are now returning to European cities.
In the USA, growth is slowing to +2.5%, due to the effects of inflation and the customary Election Year uncertaines. Growth continues in Japan (+6%) fueled by local demand and Chinese visitors. Japan, which is a premier luxury market, is destined to benefit from the increase in tourism. China can expect to see growth of 8%, lower than in previous years, due to lower demand from upper-middle class consumers, who are more cautious spenders. The forecast for the Middle East is a solid growth rate of +7%, despite the tensions and political instability in the region.
As regards Consumer behaviors, the global macroeconomic situation is set to augment the polarization between wealthier and less affluent segments of the population. Worldwide, the middle classes are showing lower purchasing power. Consumers are opting for experiences over physical products. Gen Z and Millennial UHNWI (Ultra High Net Worth Individuals) are driving luxury consumption, at an increasingly young age. Chinese consumers remain the best performers, albeit at lower levels than pre-Covid, up 10%. Consumer spending in Japan and the rest of Asia will be up 5% and 7% respectively. American spending will only grow by 3%, due to the unfavorable economic situation and high inflation. Geopolitical tensions could also slow down travel. Europeans will be the most affected by the macroeconomic context: high interest rates, inflation, and two wars in neighboring regions will undermine consumption. European consumers are the most cautious when it comes to luxury goods, and no growth is expected in 2024 (0%).
Product Categories. 2023 saw a growth in sales, above all in value, due to significant increases in the prices of luxury products. In 2024, the increase in sales is going mainly in terms of volume. Accessories continue their positive trend: +6.5% for leather goods and +5% for footwear. Entry-price products are struggling, and demand for aspirational items is weaker. Cosmetics (+5%) are driven by skincare, makeup, and niche perfumes, especially in the United States. Clothing is estimated to grow by 4%, with a return to less casual apparel. The positive trend in jewelry continues, up 5.5%: jewelry remains a safe-haven asset and an investment. The growth of watches remains stable (+3.5%), and consumers continue to show interest in unique pieces.
Distribution Channels. The retail channel - both physical and digital - continues to grow and is the preferred channel for Personal Luxury Goods. The wholesale channel is heavily penalized, and the impact of online is lessening. Physical stores can expect to see growth of 7.5%, continuing to be strategic for the sector. Digital retail (forecast +4.5% for 2024) continues to grow, but less vigorously than previous years. Both physical and digital wholesale are slackening: no growth is foreseen in 2024 (-1%).
Multigenerational complexity
Brands must navigate through rising multigenerational complexity. Generations X and Y are in their peak income years, representing the bulk of luxury purchases and the key pool of income growth in the near future. However, Generation Z is positioned at the forefront of social and cultural change, inspiring other generations’ value systems, with a strong desire for lived experiences and a quest for meaning. By 2030, Gen Z will account for 25% to 30% of luxury market purchases, while millennials will account for 50% to 55%.
Margins. In 2023, personal luxury goods companies raised prices to compensate for increases in costs, leading to higher margins. Analysts predict "normalized" growth in 2024 - due to economic uncertainty and volatility. Revenues will maintain a positive trend, with estimates for a low single-digit growth rate of +5% /+6%. In 2024 EBITDA is expected to grow more moderately, around +4%.
Conclusion
For the industry, it is crucial to manage short-term challenges. It will be all-important for brands to invest in responsiveness and adaptability. To improve operational efficiency, they will need to embrace flexibility and agility in all their activities, from the supply chain to planning to corporate governance.
In the long term, looking to 2030, the industry’s solid fundamentals are expected to continue guiding its growth, despite possible slowdowns along the way; a new season of mergers and acquisitions is anticipated, driven by the need to address the main challenges that the industry will face in the coming years (above all sustainability and digitalization).
Why CDI
The Fashion and Leisure industry includes wearable fashion and retail accessories, as well as beauty products, fragrances, and personal care items. Consolidation is a major trend for Fashion and Leisure brands, making the number of players in the industry ever smaller. While most of the M&A fashion frenzy is centered in Europe, the interest in acquisitions from Asian investors cannot be overlooked. One of the primary reasons for the continued interest from overseas investors is the industry’s growth potential. Conglomerates with multiple brands have been consistently more profitable, which provides mergers and acquisitions incentives.
At CDI Global, our team of experts draw upon their decades of experience working across borders to consult and strategize the best available deals and entry points. CDI Global’s proven transactional execution capabilities, combined with specialists who know the pulse of Fashion and Leisure mergers and acquisitions, make us a leading advisor in this sector.
By Massimiliano Morpurgo
