Industry development
Sector growth lags behind historical growth rates
The premium and luxury goods sector performed weaker than originally expected last year. Consumption, particularly in the emerging markets, remained muted against the backdrop of an uncertain macroeconomic climate, sharp fluctuations on the global equity, foreign exchange and commodity markets, and in the face of increasing geopolitical risks and extremist attacks. Despite all this, companies operating in the sector increased their sales again in 2015. However, the currency-adjusted growth rate of 1% to 2% as estimated by industry association Altagamma and consulting firm Bain & Company represented a slowdown compared to in previous years. The apparel market performed similarly to other market segments.
Sector growth was characterized by regional differences and fluctuations. After a mixed start, there was an improvement in growth trends over the course of the year, however, the market environment grew increasingly bleak in the second half. This was due to considerably softening demand in such core markets as China and the USA. Despite the more sluggish pace of expansion, the business of most brands in own retail outperformed that in the wholesale channel. Principally in the USA, department stores and specialist, frequently owner-operated multi-brand retailers came under competitive and price pressure. Above-average growth rates were achieved in the online business in particular. Last year, many companies moved to expand their online business and integrate it with their bricks-and-mortar retailing. Some brands also took steps to harmonize their global pricing architecture in response to the increasing regional shift in demand as a result of exchange rate movements that increased existing regional price differences.
Robust development in Europe supported by tourism
The greatest stimulus for sector growth last year stemmed from Europe, where a 5% growth rate was buoyed up by further increases in business with tourists, particularly from Asia and North America. Sales were driven by a euro exchange rate that favored many non-EU citizens and lower prices than in other regions. However, this effect was partially offset by a declining number of visitors from Russia. Local demand developed well overall thanks to the macroeconomic recovery, but was depressed by price increases in some instances. Eastern European markets continued to suffer from the tensions surrounding the Ukraine conflict.
Market development in the Americas marked by heavy discounting
Overall, the premium and luxury goods sector in the Americas showed a stable development after a mixed start to a year whose second half saw heavy discounting. While domestic demand in the USA remained essentially intact due to economic growth, consumer confidence and sentiment became sensitive to the turbulence on the Asian equity markets in mid year. In addition, consumers spent a greater proportion of their disposable income in other consumer sectors rather than the apparel segment. A strong US dollar and the related decline in sales with tourists also had a negative impact on sector growth. Lower retail customer footfall and high price sensitivity among consumers led to above-average discounting in the wholesale segment. By contrast, the market for premium and luxury goods in Canada and Latin America benefited from strengthening local demand, boosted by the USA’s loss of popularity as a shopping destination due to the strong dollar.
Declining Chinese market puts pressure on sector in Asia
In Asia, the industry developed unevenly from region to region in 2015. Sales in China fell by 2% in local currency. Ever more sluggish economic growth, the unexpected devaluation of the renminbi and turbulences on the stock markets depressed consumer confidence. Demand on the Chinese mainland remained weak, with sales in the menswear segment declining by a double-digit rate for the second year in succession. Rather than the strong selling space expansion observed in the past, many companies rationalized their store networks last year. Many also reacted to sluggish demand and the shift of shopping to other countries with price cuts. Including demand from tourists, Chinese consumers also contributed to global sector growth in the past year through premium and luxury purchases elsewhere in Asia and in Europe. Particularly in Australia and Japan, this spurred sector performance above and beyond healthy local demand. On the other hand, the industry suffered from a sustained decline in visitor numbers in Hong Kong, which had previously been one of the most popular destinations for Chinese tourists. This led to a total decline in sales of 8% in Asia (excluding China and Japan).