Sales of personal luxury goods such as high-end shoes, handbags and jewelry are set to increase by 6 percent at constant exchange rates in 2017 to €262 billion, according to the latest estimates by Bain & Co., made in an annual report compiled with Italy's Altagamma. This increase would mark a major rebound after sales stalled in 2016, exceeding an earlier projection for 2 to 4 percent growth. Demand is being driven especially by Chinese customers and young shoppers, Bain said, mirroring stronger recent sales and earnings by major luxury retailers such as LVMH and Italy's Brunello Cucinelli.
In recent years, luxury goods sales in Europe have been affected by security threats, which have kept many tourists away. Foreign visitors now seem to be traveling to Europe again. Other factors are driving growth, such as attempts by retailers to better connect with younger buyers, according to Bain's analysts. Also, the growth this year is described as “healthier” than before as it is balanced between tourists' purchases and local buyers, and is driven by a rise in volumes rather than in prices.
Millenials, born between the early 1980s and mid-90s, are increasingly interested in the luxury market. Brands have been using social media and marketing campaigns with influencers and pop stars to target this group, and have released products matching younger tastes such as sneakers, casualwear and streetwear.
However, purchases by younger buyers in general come at a cost, Bain pointed out. While 65 percent of luxury firms is expected to register a sales increase this year, only 35 percent should manage to raise their operating profit. In addition, young shoppers are by definition less loyal, and typically jump from one brand or retailer to another. This new state of affairs complicates things and forces companies to rethink their traditional marketing strategies.