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Deloitte Global Powers of Luxury Goods 2016 Summary

Core Content Overview

This report, Deloitte Global Powers of Luxury Goods 2016, presents an analysis of the world's 100 largest luxury goods companies, based on their 2014 financial year sales. It also provides insights into the global economic outlook, consumer trends, and key strategies for the luxury sector, emphasizing the need for disciplined innovation in a rapidly evolving market.

Main Points

Global Luxury Goods Market Overview

• In 2014, the top 100 luxury goods companies generated $222 billion in sales, with an average of $2.2 billion per company.
• The global luxury sector is expected to grow more slowly in 2016, with China and Russia showing signs of slowing growth.
• India and Mexico are growing rapidly, and the Middle East remains a promising region for future expansion.

Economic and Currency Trends

• The US dollar strengthened against other currencies in 2015, increasing purchasing power for US consumers but raising import costs for others, especially in emerging markets.
• The dollar has retreated in 2016, offering relief to emerging markets.
• Low oil prices have had mixed effects: while they increased consumer purchasing power, they also depressed business investment in oil-producing countries and led to weak economic growth in oil-exporting nations.

Key Market Trends

1. Disciplined Innovation: Luxury's New Normal

• The luxury sector is now entering the second half of the 'decade of change', characterized by the need for discipline rather than just rapid growth.
• Brands must invest in four key areas to grow: travel and millennials, digital and inertia, sustainability and shared value, and brand reputation and stakeholder management.

2. Travel and Millennials

• Travel and millennials are two major forces shaping the luxury market.
• Millennials are more connected, value experiences, and are less loyal than previous generations.
• Travel is a significant driver of luxury sales, with foreign tourists accounting for a large portion of spending in markets like France, Italy, the UK, and Hong Kong.
• Chinese consumers are the biggest spenders in travel retail, and their preferences are shifting toward more subtle and sophisticated styles.

3. Digital and Inertia

• The digital revolution is transforming how consumers engage with luxury brands.
• Connected devices and increased connectivity (e.g., 4G, Wi-Fi) are changing consumer behavior, making them constantly connected.
• Omnichannel retail is becoming essential, with brands using digital tools to enhance the in-store experience.
• M-commerce presents a challenge due to the limited screen size of mobile devices, but free delivery and click-and-collect services are becoming standard in the sector.

Regional Insights

Europe

• The European market is recovering, with domestic and tourist spending cautious.
• Entry-level products and affordable luxury brands are performing well.
• The UK is a digital leader, with social media and wearable tech playing a key role.
• The EU referendum has created uncertainty for corporate investments.

Russia

• Luxury sales declined significantly in 2015 due to economic sanctions and consumer restraint.
• Stagnation is expected to continue in the foreseeable future.

China/Hong Kong

• Both mainland China and Hong Kong are experiencing a slowdown in luxury spending.
• Middle-class consumers in China are shifting to overseas markets and cross-border e-commerce for better prices.
• Government policies against luxury gifts in the corporate sector are affecting overall demand.

Rest of Asia

• India is expected to maintain strong growth, although it still has challenges to become a major luxury market.
• Japan is set to perform well due to increased tourism for the 2020 Olympics.
• South Korea will see steady growth as the market matures.

Middle East

• The Middle East is a key growth opportunity for luxury brands.
• Luxury malls in Abu Dhabi and Dubai have helped establish these cities as luxury hubs.
• Tourism is a major driver of sales in Dubai.
• Political unrest and global economic uncertainty may pose challenges, but overall growth is expected.

United States

• Growth slowed in 2015 due to the strong dollar and declining Chinese tourism.
• Domestic spending increased, and affordable luxury brands like Kate Spade performed well.
• Online sales are growing rapidly, and digital presence is becoming a key differentiator.

Latin America

• Mexico is the largest luxury market in the region, followed by Brazil.
• The strong dollar made domestic luxury goods more attractive to Mexican consumers.
• Brazil saw a slowdown in 2015 due to economic uncertainty, with consumers favoring affordable luxury brands.
• Millennials in Brazil are more price-sensitive and prefer discreet luxury items.

Strategic Implications for Luxury Brands

• Brands must rethink their CRM, marketing, and data analytics strategies to effectively engage with millennials.
• The airport shop model is at risk of being outdated and needs reinvention to meet the expectations of modern consumers.
• Innovation in digital and omnichannel retail is crucial for long-term success.
• Reputation and stakeholder management are essential to avoid negative impacts from external events and regulations.

Conclusion

The luxury market is evolving rapidly, driven by digital transformation, changing consumer behavior, and economic factors. Brands that can adapt to these trends with disciplined innovation and strategic foresight will be better positioned to succeed in the new normal. The key forces—travel and millennials, digital and inertia—offer both opportunities and challenges for the sector. As the market continues to shift, investment in technology, customer experience, and sustainability will be vital for long-term growth.