Disciplined innovation key to luxury companies’ longer-term success, according to Deloitte report
Published: 7 June 2016
Global luxury brands need to respond smartly to new key market forces and raise their game when serving the evolving expectations of the luxury consumer, according to the third annual Global Powers of Luxury Goods report issued by Deloitte Global.
The report examines and lists the 100 largest luxury goods companies globally, based on publicly available data for consolidated sales of luxury goods in financial year 2014 (which we define as financial years ending within the 12 months to 30 June 2015). It also provides an outlook on the global economy; an analysis of merger and acquisition activity in the industry and discusses the key forces shaping the luxury market.
“There is a shift in the luxury path-to-purchase. Empowered by social networks and digital devices, luxury goods consumers are dictating increasingly when, where and how they engage with luxury brands,” said Patrizia Arienti, EMEA Region Fashion and Luxury sector leader for Deloitte Global. “They have become both critics and creators, demanding a more personalized luxury experience, and expect to be given the opportunity to shape the products and services they consume.”
Based on publicly available data, the world’s 100 largest luxury goods companies generated sales of $222 billion in financial year 2014, 3.6 percent higher year-on-year. The average luxury goods annual sales for a Top 100 company is now $2.2 billion.
“The global luxury goods sector is expected to grow more slowly in 2016, at a rate many retailers may find disappointing,” said Ira Kalish, Chief Economist for Deloitte Global. “The growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well and there are pockets of opportunity across the globe. India and Mexico for example are growing quickly, and the Middle East offers further growth potential.”
"Both mainland China and Hong Kong continue to experience a slowdown in luxury goods spending, with economic uncertainty dampening consumer confidence," said David Lung, Consumer Products and Retail Sectors Managing Partner, Deloitte China, "Having said that, China is still driving much of the volume growth in travel retail, and this will continue as the next generation of luxury shoppers come into the work force and start to acquire wealth. According to the statistics, overall Chinese consumers are the travel sector's biggest spenders and they remain strategically important for luxury brands. There are currently over 400 million millennials in China, which is more than the working populations of the US and Europe combined. Prices are no longer their priority concern, instead, they are more keen for brands and products with high quality and character.."
Key findings from the report include:
- Discipline by design: luxury’s new normal – The luxury goods sector has now passed the mid-point of the ‘decade of change’. The first half was characterized by the Chinese consumer and the explosion in the use of digital technology. The second half of the decade is expected to be characterised by discipline. The external environment is likely to change in a number of crucial areas: an evolution in consumer buying behaviors; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy. All of these factors create opportunities for the luxury goods sector.
- Demand for luxury goods still growing profitably – Sales for the world's 100 largest luxury goods companies continued to grow despite economic challenges, although the rate of growth was less than in previous years. Profit margins were higher than the previous year and the polarisation of company performance was greater, with more high performers achieving double-digit luxury goods sales growth and profit margins, and also more companies experiencing double-digit sales decline.
- Italy is once again the leading luxury goods country in terms of number of companies – With 29 companies in the Top 100 it has more than double the number based in the US, which has the second-largest number. However, Italian companies account for only 17 percent of luxury goods sales in the Top 100 – these predominantly family-owned Italian companies are much smaller, with average luxury goods size of $1.3 billion, compared to $3.1 billion for US companies.
Full details about the Global Powers of Luxury Goods are available here.