Luxury brands have a tough few years ahead as growth slows

The luxury industry is gearing up for a few years of slow and incremental growth. Between 2010 and 2015 the global sales of luxury goods increased by a whopping 45% however, the past year has seen this sort of growth slow down considerably. A number of factors have affected this slowdown including Brexit, the US Presidential election and the slowdown of China’s economy as well as their government’s crackdown on corruption.

Management consultants Bain & Company place China at the center of this change. Today Chinese shoppers account for as much as 30% of all personal luxury sales in the world, however the growth they bring will not be as exponential as in past years. “We expect around 30 million new customers in the next five years coming from the Chinese middle class,” Claudia D’Arpizio, a Bain partner and lead luxury analyst, told Quartz last year. “But this is nothing comparable to the past big waves of demographics entering [the market]. This new normality will mean mainly trying to grow organically in the same consumer base, being more innovative with product, more innovative with communication.”

With no significant new market like China left to tap (at least in the near future) brands must resign themselves to lower growth. “In the new normal, we expect a compound annual growth rate (CAGR) of 3% to 4% for the luxury goods market through 2020, to approximately €280 billion,” says the Bain report. “That is significantly slower than the rapid expansion from the mid-1990s to the late 2000s.”

In the past, brands have coped with such economic hurdles by launching lower priced collections, so perhaps this may an opportunity to see more diversity in luxury products.