Luxury goods: Australian sales growth forecast to beat broader retail market
3 September 2018: With global luxury goods sale growth bottoming out in FY17, Australian market sales are forecast to grow 6-8% per year through to 2024, well ahead of 3% annual growth forecast for the broader retail sector.
Releasing Deloitte’s fifth annual Global Powers of Luxury Goods report in Australia, Deloitte National Retail Leader, David White, said a number of key trends would dominate the local luxury segment in coming years:
- Increasing competition – the Australian market can expect to see the arrival of further international luxury brands, and those already in market will continue to expand their store footprints and online offerings
- The rise of the flagship store – the role of the flagship store in building the brand is becoming increasingly important, and luxury retailers in Australia continue to jostle for prime retail locations and provide increasingly creative, inspirational, and aspirational shopping experiences
- Growth in online – with some market observers expecting online to account for 25% of total sales globally by 2025, significant growth in this area is expected for the Australian market
- The next generation consumer – winning the hearts and minds of the next generation of consumer – with social media and alternative sales channels to be critical – will be key.
“Australia has experienced an acceleration of new brands either entering our market, or expanding their existing operations in recent years, with total sales growth peaking at 16% in 2016,” White said.
Growth rates have subsequently slowed, but the next seven years are forecast to see annual growth between 6 and 8%, significantly higher than the broader Australian retail market, which is forecast to grow at around 3% per year. This is also significantly higher than the 3.9% average growth rate experienced by the top 100 luxury retailers globally over the past three years.
Melbourne and Sydney remain the strongest Australian markets, although key shopping destinations in Queensland, including the Gold Coast and the major shopping malls in and around Brisbane’s CBD, have also attracted an increasing number of luxury retailers.
White said "the growth story hasn’t been limited to just bricks and mortar stores."
“With handmade crocodile skin handbags selling for upwards of $50,000, we’ve seen the likes of Louis Vuitton and Hermes, for example, make strategic acquisitions of Australian crocodile farms in order to secure their supply chain of this scarce commodity,” he said.
Australia’s luxury market, and its growth prospects, also continue to be defined by two key segments – tourists from Asia, and local domestic consumers.
“Our close proximity to Asia and, in particular China, has seen significant growth in purchases from high spending tourists visiting and shopping in Australia. Retailers have responded by opening new stores in peak tourist areas, as well as ‘sixth continent’ international airports, where retailers are targeting consumer segments based on travel times, destinations and even language,” White said.
“That said, while Chinese tourists have provided a significant source of sales growth, they only make up around 30% of our luxury market. Local consumers, as well as international students, remain highly significant to forecast growth trajectory, and even during tougher times, we have seen local sales remain relatively solid.
“While the local luxury market overall is set to grow next year and beyond, competition also continues to increase, and as with the rest of the retail market, there will be winners and losers in the battle for market share.
“With the increasing influence of the next generation of consumers, and speed of change in the luxury segment, brands can increasingly go from hero to zero in a very short period of time. We can expect to see more disruption, as well more opportunities, for those operating in the Australian market, all of which will be good news for Australian consumers.”
Key global luxury market points include:
- The world’s 100 largest luxury goods companies generated sales of US$217 billion in FY17
- The top five largest fashion and luxury players remained LVMH Moët Hennessy Louis Vuitton SE, The Estée Lauder Companies Inc, Compagnie Financière Richemont SA, Luxottica Group SpA and Kering SA
- 57 of the top 100 increased their luxury goods sales year-on-year, with 22 achieving double-digit growth
- Italy is once again the leading luxury goods country in terms of number of companies, while France had the highest share of sales
- China, France, Germany, Italy, Spain, Switzerland, the UK and the US together made up 83% percent of the top 100 luxury goods companies, and 90% of top 100 luxury goods sales.
“Globally, the luxury market bounced back in FY17 from economic uncertainty and geopolitical crises of 2016. Whether future total global market growth will be single or double digit will depend on many factors, including larger geopolitical developments and their impact on tourism,” White said.