Global sales of luxury goods are headed for a collapse in the next few months, as the coronavirus pandemic ravages demand, Bain & Company said in a new report published Thursday.
According to the consulting firm, worldwide sales of personal luxury goods — which include clothes, jewelry, watches, beauty products, and accessories — will plummet by about 50% to 60% in the three months ending in June.
First reported in China's Hubei province late last year, the virus has now infected more than 3.8 million people and killed over 269,500. To stem its rapid spread, countries practically shut down their economies and pushed for social distancing rules that kept people in their homes and forced most retail stores to close. Domestic and international travel have also been halted.
Millions across the globe have lost their jobs and the world is in the "worst economic downturn since the Great Depression," according to the International Monetary Fund.
Though some of those stringent measures are being eased in many places, Bain predicted that there will be a full-year contraction of between 20% to 35% for the personal luxury market. Estimated sales for 2020 is expected between 180 billion euros to 220 billion euros (around $195 billion - $239 billion).
"There will be a recovery for the luxury market but the industry will be profoundly transformed," said Claudia D'Arpizio, a partner at Bain and the main author of the report.
The report, Bain & Company Luxury Study 2020 Spring Update, was done in collaboration with the Italian luxury goods manufacturers' foundation Altagamma. It did not account for the impact of a second wave of infections, or the development and introduction of a global vaccine.
Consultancy McKinsey & Company also issued a report in April which said global revenue for the personal luxury goods market is expected to contract between 35% to 39% in 2020, compared to the previous year. Its analysis found that if stores remain closed for two months, approximately 80% of "publicly listed fashion companies in Europe and North America will be in financial distress."
The personal luxury market registered an estimated sales of 281 billion euros in 2019 before the virus outbreak, according to Bain. It is expected to return to that level between 2022 and 2023, depending on economic trends, consumer confidence levels at that time, tourism flows, and brands' ability to anticipate and fulfill consumer needs, said the consultancy.
Chinese consumers are predicted to lead the revival in luxury shopping. Most of the country has emerged from lockdown and the virus outbreak on the mainland appears to be under control for now.
After months of store closures, social distancing, and disrupted personal and professional habits, Chinese customers will likely show a willingness to "recover part of purchases not made during lockdown," Bain said.
Due to the global travel restrictions, Chinese customers, who typically go overseas to places like Paris, London and New York to buy their designer items, are likely to make their purchases within the country, according to the report.
The best performing brands are already seeing an increase in their year-to-date numbers in China, Bain said. Store visits have nearly halved from a year ago but, many of those who visit the physical outlets tend to make purchases.
The personal luxury market is predicted to reach between 320 billion euros to 330 billion euros by 2025, in part due to the growth of Chinese luxury consumers. Five years from now, China is expected to account for nearly half of all luxury spending worldwide, compared to 35% in 2019, Bain said.
China "will continue to drive luxury market growth" and about 50% of those purchases are set to take place on the mainland, the report said. The rest of Asia "will follow closely," driven by a mix of both local consumption and intra-regional tourism, it said.