Luxury goods sales growth bottoms out – Swiss companies recovering from setback in FY2016

The world’s 100 largest luxury goods companies generated sales of US$217 billion in FY2016, but have been growing at a slower pace than in previous years: The average growth rate stands at 1%, which is 6pp lower than one year earlier, according to the annual Global Powers of Luxury Goods report issued by Deloitte. Switzerland remains one of the strongest luxury goods markets, with three companies in the top 12, excelling especially in luxury watch-making. However, the three largest Swiss companies – Richemont, Swatch and Rolex – have all dropped in the ranking, mainly due to the strong Swiss Franc and a downturn in tourism. To succeed in a quickly changing context and in new markets, luxury players are increasingly shifting their focus on digital connectivity, upwardly mobile consumers and bold business models.

The new report examines and lists the 100 largest luxury goods companies globally, based on publicly available data for consolidated sales of luxury goods in FY2016 (which we define as financial years ending within the 12 months to 30 June 2017). It also discusses the key trends shaping the luxury market and provides a global economic outlook.

The world’s 100 largest luxury goods companies generated sales of US$217 billion in FY2016; this is a slow growth of US$5 billion (1%) compared to the year before^[1]. The industry is marked by a high economic concentration: The ten largest companies account for 47% of the total turnover of all 100 companies. The top five largest players – LVMH, Estée Lauder, Richemont, Luxottica and Kering – retained their positions on the leader board.

“Though we’ve seen a dip in the growth of luxury goods sales in the past years, FY2016 seems to mark the bottom of the downturn for most companies. And growth in the luxury goods industry will continue, unlike in several other industries,” says Karine Szegedi, Head of Fashion & Luxury at Deloitte Switzerland. “The essence of luxury is changing from an emphasis on the physical to a focus on the experiential and how luxury makes you feel. However, premium quality remains a ‘must have’ and consumers retain a keen eye for craftsmanship and hand-made products.”

Swiss market dominated by Richemont, Swatch, and Rolex

There are nine Swiss companies in the Top 100 this year. Switzerland's luxury good sales are still dominated by Richemont, Swatch, and Rolex, which together account for 87% of FY2016 luxury goods sales for the nine Swiss companies in the ranking.

All three Swiss luxury goods giants, each with sales in excess of US$5 billion, dropped one place in the ranking on the back of falling sales. Richemont is in 3rd position, Swatch Group was overtaken by L’Oréal and now ranks 7th, while Rolex dropped to 12th.

“A large part of Swiss luxury goods companies’ business is generated outside of Switzerland. They thus continued to feel the impact of the strong Swiss franc as well as the decrease in tourist traffic in Switzerland and Europe. But with the franc’s strength easing, the macroeconomic climate improving, and companies moving towards digital technologies and more agile business models, we are optimistic for the coming years,” says Karine Szegedi.

Such tendencies are confirmed by the positive sales and operating margin growth reporting by Swatch end of January 2018 for fiscal 2017 and last Friday by Richemont on their fiscal year ended March 31, 2018.

Overall, the report shows that Swiss companies had indeed a low composite luxury goods sales performance in FY2016, with sales down 5.1%% after a growth of 3.6% in the last period, but it is to be highlighted that the Swiss watchmaker Richard Mille achieved an impressive 21.6% sales growth in FY2016; the second time in a row a double digit growth.

 Just as Italy is the global leader in fashion, Switzerland is second to none in luxury watch-making: Eight out of the nine Swiss companies in the Top 100 are watchmakers. The strength of their brands can be seen in their presence in jewelers and other distribution outlets for luxury watches around the world, as well as in their own growing store networks. Multiple luxury goods company Richemont for example obtains nearly 30% of its sales from its portfolio of luxury watch brands such as Vacheron Constantin or Jaeger-LeCoultre. 

“The Swiss luxury industry and specifically the watch industry is back on the path for growth. The resilience of Swiss luxury goods companies comes down to their positioning in fine watchmaking and their strategy of not only being present in most geographic regions but as well by tackling the on-line market by strongly developing their presence on the e-commerce platforms. The barriers to entry created by the brand heritage and the technical and design excellence of the Swiss luxury watchmakers are proving very hard to overcome,” says Karine Szegedi. 

Geographical split: Italy and France in the lead

Italy is once again the leading luxury goods country in terms of the number of companies, while France has the highest share of sales, followed by the US and Switzerland. China, France, Germany, Italy, Spain, Switzerland, the UK and the US together made up 83% of the Top 100 luxury goods companies and 90% of Top 100 luxury goods sales. 

Rapidly changing markets and customer needs

The luxury goods industry has faced deep changes over the past two decades. Varying economic trends, rapid digital transformation and evolving consumer preferences and tastes are creating a new competitive landscape where traditional strategies are under threat. The growing importance of non-western markets for the luxury goods industry has been supported by supply chain leadership, technological innovation, international investment and adjustments to demographic changes. These factors will help maintain further strong growth in these geographical markets.

Given ever-evolving customer preferences, the growing importance of the younger generations and the increasing use of mobile platforms, the ability to switch seamlessly among different channels has become essential for personal luxury brands. If they are too slow to implement digital supply networks, they risk to be left behind. 

^[1] The 1.0% year-on-year growth is based on currency-adjusted composite retail revenue for the FY2016 group of Top 100 companies. This growth rate was adjusted for fluctuations in currency exchange rates from FY2015 to FY2016, thus representing true growth.

About the Global Powers of Luxury Goods report

The Global Powers of Luxury Goods report identifies the world’s top 100 largest luxury goods companies based on publicly available data and analyses them from multiple perspectives. It also examines industry trends and global economic conditions. Full details about the Global Powers of Luxury Goods report are available here.

Deloitte Switzerland

Deloitte is a leading accounting and consulting company in Switzerland and provides industry-specific services in the areas of Audit & Assurance, Consulting, Financial Advisory, Risk Advisory and Tax & Legal. With more than 1,800 employees at six locations in Basel, Berne, Geneva, Lausanne, Lugano and Zurich (headquarters), Deloitte serves companies and organisations of all legal forms and sizes in all industry sectors.

Deloitte Switzerland is an affiliate of Deloitte North West Europe, a member firm of the global network of Deloitte Touche Tohmatsu Limited (DTTL) comprising of around 264,000 employees in more than 150 countries.

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