Experiences, not products, count for luxury consumers

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People walk by Ralph Lauren’s store in New York. Chinese consumers spent less on luxury items as tourists in 2016.

They purchased more luxury goods at home than abroad in 2016

All businesses go through cycles. The retail industry is no different. Some cycles are up and other cycles are flat or trend lower. The retail industry globally performed well in 2016. Yes, that is correct.

According to Bain & Company, a top international management consulting company, researching global retail performance in 2016 confirmed that overall, the global luxury industry led by luxury cars, luxury hospitality and personal luxury items grew by four per cent totalling approximately $1.1 trillion. These goods tracked by Bain & Company accounted for about 80 per cent of the items in the total luxury market.

The luxury items performing the best globally included fine wines, fine foods and the luxury beauty industry. The focus in 2016 was redirected away from luxury goods. The consumers of luxury items refocused spending to experiences rather than items.

The core of the personal luxury goods which includes fine watches, jewellery, leather goods and apparel in 2016 was generally flat in consumption, globally totalling about $255 billion. In 2015, the value of the personal luxury goods was about the same.

Interestingly, the greatest factor impacting the global luxury market in 2016 was the global currency exchange rates.

When you calculate the total value of sales globally for luxury goods, a trend worth noting is that for the first time since 2001, home country purchases exceeded tourist purchases. The growth of luxury retail outlets in the newly-constructed high-end shopping centres continued at a brisk pace globally in 2015 and 2016. Shoppers for luxury goods did not have to travel to foreign destinations to find coveted luxury items. What this means is that wealthy shoppers purchased luxury items in their home town or home country.

Chinese consumers, for instance, were spending less on luxury items as tourists in 2016. As the countries’ middle class population continues to grow in size and purchasing power, the appeal of aspirational luxury purchases at home has taken root.

Bain & Company forecast that the global growth of luxury sales through 2020 will continue to grow at four per cent per year. This growth forecast is given provided that the foreign currency exchange rates remain in similar trading ranges to the past year.

Several countries have witnessed a growth in numbers of affluent residents and ultra high net worth individuals. The UAE, China and Canada are countries which have attracted and grown very affluent residents. Experts have determined that with the increase in the affluence of the residents, the luxury brands will continue to prosper through expansion in countries where these wealthy consumers will shop at home.

Given the changing political landscape globally in 2017, travel restrictions may further negatively impact tourism purchases. Spending patterns, demographics, mobility and currency exchange rates will have a continued impact on the luxury retail industry. What is crucial, however, is the global insatiable appetite for all luxury items. The importance of the luxury segment of retail can never be underestimated. Expect lower but sustained growth.

By David Macadam Courtesy Khaleej Times

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