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Luxury Goods Industry Primer

The luxury goods industry is a core industry within Consumer & Retail. Depending on its definition, specifically whether or not it includes luxury cars and hospitality, the market size of the luxury goods industry ranges from $200 billion to $1.2 trillion. We will focus on the core luxury goods industry in this primer: the luxury personal goods industry.

Luxury Market Size and Geography

The luxury personal goods industry has a market size of ~$300 billion, growing at ~6% year over year. A significant portion of the growth is driven by the emerging middle class in the Chinese market, despite the economy facing headwinds over the trade conflict and a significant debt overhang. Local purchases are around ~$25 billion, while the share of personal luxury goods purchased globally by Chinese travellers is roughly 1/3 of the total market. The growth in purchases by Chinese consumers has been nothing but remarkable, rising from less than 2% of the total market in 2000 to 32% in 2017. The European market remains the largest market at ~$100 billion, growing at ~6%. The American market falls to the second largest market at roughly ~$95 billion, growing at ~2%.

Historically, the west has dominated in terms of luxury goods sales, but this is changing. 2017 was the first year where a larger proportion of luxury goods sales came from the rest (Asia, Middle East, Latin America, and Africa) versus the west (Europe and North America).

Trends in Luxury

Despite the solid growth in the luxury personal goods industry, the industry is heavily dependent on discretionary income, and therefore the macroeconomic conditions. Faced with significant uncertainty, both economic and political, growth is becoming bimodal – higher in luxury and discount, but lower in mid-market.

From a distribution perspective, wholesale is the largest channel for personal luxury goods, at roughly 2/3 of all sales. However, direct to customer (D2C) is growing, and leading the way is the online sales at 24%. Companies like Canada Goose have publicly announced their focus on D2C in order to expand margins.

The industry is not insulated from changing technology, and has had to rapidly adopt the latest digital techniques. Specifically, Augmented Reality (AR) has been used to aid sales, and Artificial Intelligence has been used for recommendations and advice. One example is the use of AR by the makeup sector to allow customers to try on their products, tackling one of the fundamental problems of online retail.

With regards to online retail, brands have increasingly enhanced their omnichannel retail strategy. By offering services like online order from stores, and accepting e-commerce returns from different countries, brands are able to deliver more convenience and personalization to their consumers.

Key Luxury Industry Players

The most significant player in the industry is, by far, Louis Vuitton Moet Hennesey (LVMH). With a large and diversified portfolio of luxury fashion and alcohol brands under its portfolio, LVMH has proved itself to be resilient towards downturns. 63% controlled by the Arnault family, his luxury conglomerate owns iconic brands such as Louis Vuitton, Moet, Hennesey, Fendi, Marc Jacobs, and Tag Heuer. Recent acquisitions were Belmond in 2018, Christian Dior is 2017 and Rimowa in 2016. Most if not all brands under LVMH are categorized under luxury.

Kering is the other major conglomerate is the luxury goods industry. With high fashion brands such as Gucci, Saint Laurent, Balenciaga, Alexander McQueen and Bottega Veneta under its portfolio, Kering is an active consolidator with interest in more acquisitions (Valentino was rumoured to be a target). With Empowering Imagination as its signature, Kering is 58% controlled by the Pinault family. Recent acquisitions include Ulysse Nardin in 2014 and Brioni in 2012. Most if not all brands under Kering are categorized under luxury.

Ralph Lauren is the largest US premium goods brand. With ~500 Ralph Lauren store and ~130 Club Monaco stores, Ralph Lauren has a large US presence. The brand sells at a lower price point compared to its European high fashion counterparts, and is roughly in line with PVH. Both brands can be categorized in either premium or affordable luxury.

PVH Corp is the second largest US premium goods brand, with 3 brands under its portfolio: Calvin Klein, Tommy Hilfiger and IZOD. PVH has a larger focus on male fashion, sold at a similar price point as Ralph Lauren. Recent acquisitions include Geoffrey Beene in 2018 and True & Co in 2017. All 3 brands are categorized under premium.

Capri Holdings (formerly Michael Kors) is a US luxury apparel, handbags and footwear company. With Michael Kors, Jimmy Choo, and Versace under its portfolio, it is the first US company with ownership of a European high fashion brand. Michael Kors is categorized under affordable luxury, while Jimmy Choo and Versace are categorized under luxury.

Tapestry Inc (formerly Coach) is a US luxury handbags and footwear company. With Coach, Kate Spade and Stuart Weitzman under its portfolio, it is the other US luxury consolidator. Coach and Kate Spade are categorized under affordable luxury, while Stuart Weitzman is luxury.

Other notable players in the market are:

  • Hermes
  • Burberry Group
  • Prada Group
  • Hugo Boss
  • Giorgio Armani
  • Max Mara
  • Salvatore Ferragamo
  • Dolce & Gabbana
  • Valentino
  • Moncler
  • Tory Burch
  • Ted Baker
  • Longchamp
  • Cole Haan
  • Canada Goose

Sources

McKinsey The State of Fashion 2018

Deloitte Global Powers of Luxury Goods 2018

Bain Global Luxury Report 2017

HSBC Too Bling to Fail

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