Luxury spending to rebound in 2017 on Europe, China, Bain says

Tourism in Spain and the U.K. will lead a rebound in European luxury spending this year, while Chinese domestic consumption also increases, Bain & Co. said, raising its forecast for global growth in 2017.

Sales of items such as designer handbags and fine jewelry will rise 2 percent to 4 percent to as much as 259 billion euros (USD290 billion), Bain said in a report yesterday. The consultancy had predicted growth of 1 percent to 2 percent in December, and the forecasts exclude currency swings.

High-end labels like Burberry and Prada found it hard to keep up momentum in 2016 amid flagging consumption in China and a terror-related downturn in European tourism. Since then, the outlook has become rosier after market leaders like LVMH and Gucci-owner Kering reported first-quarter sales growth that beat expectations.

While sales will grow faster than expected overall in 2017, performance between brands will become more polarized, Claudia D’Arpizio, the study’s lead author, said by phone.

“Consumers are asking for more innovation and more creativity,” she said. “We are seeing a bigger gap between winners and losers, driven by the ability of brands to understand the way the consumers are changing.”

Christian Dior, Salvatore Ferragamo, and Kering-owned Brioni were among those that changed designers or chief executive officers during the past year as slower growth prompted luxury companies to rethink their strategies. Brands across the sector have increased investment in e-commerce and reinforced their offer at entry-level price points in an effort to hook younger consumers.

Through 2020, sales of personal luxury goods will grow 3 percent to4 percent per year at constant exchange, Bain said in the study, which it publishes twice a year in partnership with the Italian luxury lobby Altagamma.

In Europe, recovering tourist flows and increased consumer confidence will drive growth 7 percent to 9 percent at constant exchange for the region’s luxury market in 2017.

Sales will grow 6 percent to 8 percent in mainland China, Bain forecast, as efforts to bring prices in line with other regions encourage consumers to make more luxury purchases at home.

In the Americas, struggling department stores in the U.S. – the world’s largest luxury market – and slumping tourism are expected to curb luxury sales, which are expected to decline as much as 2 percent. Robert Williams, Bloomberg