Luxury goods market back on track

The outlook for the luxury goods market has improved significantly in recent months, boosted by a stronger-than-expected US and Europe rebound and surging demand in China, consultancy Bain & Co said. Bain raised its 2011 growth forecast for luxury sales to 8% after recent sales data from groups such as LVMH and Burberry comfortably beat market expectations. "The surprise was mainly in the US and Europe," commented Claudia d'Arpizio, a Bain partner in Milan. "Luxury shame is now over," d'Arpizio added, saying that customers were becoming less hesitant to pay full price. Strong tourist flows in Europe, coupled with a pick-up in sales at US department stores, contributed to the recovery, Tuesday's report said.

If customers tightened their purse strings in 2009, spooked by the financial crisis, and 2010 was the year they started loosening them again, 2011 should see a return to normal luxury-goods consumption, in line with historical trends.

Bain also said it believes luxury sales rose 8% last year at constant currencies, up from a previous 6% estimate. In nominal terms, global luxury goods sales grew 12% last year, against a previous 10%.

Bain's findings mean that global luxury sales growth will not slow in 2011, as previously thought, in spite of Japan's earthquakes and nuclear crisis and the tough comparative basis of 2010, which was a catch-up year for many luxury brands.

The consultancy estimated luxury sales would grow 5-6% in 2012 and 2013, led by emerging markets buyers and resilient demand in Europe and the United States.

But China, poised to become the biggest luxury goods consumer within five years, will be the top contributor to growth.

Buyers from mainland and greater China, when counting those at home and abroad, are already the world's number 2 luxury customers behind the Americans, Bain said.

Luxury sales in mainland China rose 30% in 2010 and are forecast to grow 25% at constant currencies this year to €11.5bn, while US luxury sales are set to grow 8% to €52bn in 2011, after rising 10% at constant currency terms in 2010 to €48.1bn, it said.

Japan, which used to be the world's biggest luxury goods buyer and is now in third place behind mainland and greater China combined, is expected to see luxury sales fall 5% this year at constant exchange rates to €17bn.

LVMH sales in Japan fell 9% in the first quarter and 25% in March alone, though Dior (LVMH.PA) (DIOR.PA) chief executive Sidney Toledano last week said sales in Japan were on the mend..

D'Arpizio favoured Brazil over India as the next big source of growth after China, as India's lack of retail space and preference for traditional dress and home-made jewellery made it tough for European brands to penetrate.

"We see Brazil being a major engine of growth going forward, but of course not of the same magnitude as China," d'Arpizio told Reuters in an interview.

Brazil's luxury sales totalled €1.8bn in 2010 and are set to grow 10-15% between 2010 and 2013, Bain estimated. In Russia, Bain sees sales of €4.8bn in 2010, growing 5-10% by 2013.

The Middle Eastern market, worth €4.1bn in 2010, is likely to grow 10-12% over the same time-span.

Overall, Bain said global luxury goods sales were set to reach a record €185bn this year compared, with €172bn in 2010.

In 2009, the worst year on record for the industry, global luxury sales fell 8% at constant exchange rates and 11% in nominal terms, with much of the decline concentrated in the United States and Southern Europe.