Although figures for 2008 suggest positive sales growth, if significantly slower than in previous years, the market is set to decline in 2009.
Decline in sales in 2009
The Bain and Company report predicts up to a 7 percent drop in sales within the global luxury market at constant exchange rates.
“The impact of the financial crisis will bring some sectors into a recession. How much and how long depends in part on how companies react,” said lead author on the study Claudia D’Arpizio.
According to D’Arpizio the most resilient of companies will be those who have strong international and diversified brands.
In addition, the report warns that companies should avoid cutting strategic costs such as marketing and creativity related expenses, and instead try to develop the premium shopping experience.
“As with the downturn at the beginning of this decade, brands that cut overhead costs while investing in their customers and products will be in the best position to recover strong year-over-year growth once the economy improves,” explained D’Arpizio.
Although the short term outlook is gloomy, Bain and Company do expect the market to recover in the long term.
This recovery is likely to be led by high-spending individuals in the emerging markets of Brazil, Russia, China and India. This, coupled with increasing personal wealth in all markets and increasing tourist flows, leads the authors to regard the future of the market with optimism.
‘Absolute’ luxury brands remain protected
In addition, the report notes that not all sectors of the market will experience the economic storm clouds in the same way.
‘Absolute’ luxury brands such as Hermes and Loro Piana are well placed to weather the storm according to the report, as their brand heritage appeals to the wealthiest of global consumers.
In contrast, what the company terms ‘accessible’ brands such as Ralph Lauren will be directly affected by the current climate and sales growth for 2008 is likely to be flat.
The report also notes that the experience of the recession will differ across product categories.
Powerful advertising and high competition will go some way to protect the fragrance sector from difficult times however the weak holiday period will negatively effect 2008 sales.
Cosmetics, a sector less reliant on the Christmas period will remain more resilient and within the sector skin care is likely to gain ground over color cosmetics.