What: The Bain Altagamma 2020 luxury report.

Why it is important: The pandemic pushes luxury to sharpest fall ever but catalyses industry’s ability to transform.

The core personal luxury goods market contracted for the first time this year since 2009, falling by 23% at current exchange rates to hit EUR217 billion. The drop is the largest recorded since we have been tracking the industry. The overall luxury market shrunk at a similar pace and now is estimated at approximately EUR1 trillion.

Scenarios for 2021 are varied and Bain forecasts growth that ranges from +10/12% to +17/19% depending on macroeconomic conditions, the evolution of Covid-19 and the speed of return to travel globally as well as the resilience and confidence of local customers.

The decline in revenue is taking a disproportionate toll on profitability – Bain expects operating profit to decline by 60% in 2020 vs. 2019 level (i.e. from an average of 21% margin to 12% margin). According to the study, in 2021 the market is expected to recover 50% of the profit loss of 2020 – still below 2019 levels.

Key takeaways:

• Bain expects the recovery to gather pace over the next three years, with the market returning to 2019 levels by the end of 2022/early 2023.
• Mainland China has been the only region globally to end the year on a positive note, growing by 45% at current exchange rates to reach EUR44 billion.
• The regional shifts mark an acceleration of a rebalancing of where luxury purchases  are made as tourists shift to buy in their home markets.
• In the luxury market, online sales made up EUR49 billion in 2020, up from EUR33 billion in 2019. The share of purchases made online nearly doubled from 12 percent in 2019 to 23 percent in 2020.
• Bain expects no growth in the number of stores operated directly by brands in 2020 and possible decline in store networks in 2021.
• Younger generations – who are set to drive 180% of the growth in the market from 2019 to 2025 – place an unprecedented emphasis on tackling social and racial injustice. These “activist” consumers seek brands that align with their vision and desire for purpose.

“By 2030, this industry will be drastically transformed. We will not talk about luxury industry anymore, but of the market for insurgent cultural and creative excellence. In this new enlarged space, the winning brands will be those that build on their existing excellence while reimagining the future with an insurgent mindset. Luxury players will need to think boldly to rewrite the rules of the game,” said Federica Levato, a Bain & Company partner and co-author of the study.

Covid-19 crisis pushes luxury to sharpest fall ever but catalyses industry’s ability to transform