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Catch the latest outlook for luxury retail | ALW2019

Cyrille Fabre, Head of Consumer Products and Retail, Middle East, at Bain & Company provided a deep dive into the retail projections for the luxury industry.

"What we are seeing over the last few years is the return to the 'new normal' ... a 6 percent per annum growth rate." Chinese consumers will grow from one-third of the personal luxury goods market to a staggering 46 percent by 2025 By 2025, almost 100 percent of luxury purchases will be influenced by an online transaction

The regional economic and retail outlook has changed profoundly over the last three years. Following years of decline and hardship, the economic situation and retail landscape have stabilized in parts of the region, but continue to be difficult in others. In this context of uneven growth, e-commerce is rising, driven by a new generation of millennial consumers, and many stores are no longer profitable.

Cyrille Fabre, Partner and Head of Consumer Products and Retail, Middle East, at Bain & Company Middle East Inc., provided a deep dive into the economic and retail projections for the luxury industry during the sixth edition of the Arab Luxury World, the Middle East’s leading luxury business conference, taking place on Wednesday, June 12 and Thursday, June 13, at the JW Marriott Marquis Dubai. He addressed the key questions: How did luxury retail industry fare during the last 12 months? … and  … What will the next year look like?

Despite the geopolitical headwinds, volatility in oil prices, and slowing global economies, the luxury retail industry seems to have weathered the worst of the storm and is not looking to put some wind in its sails. Proactive government initiatives, the rise of consumerism, a digital-friendly young population, a strong tourism trajectory in the MENA and GCC regions seem to have fuelled the luxury retail into growth.

"What we are seeing over the last few years is the return to the 'new normal'. The personal luxury goods market witnessed a growth rate of 6 percent per annum last year, which is aligned with the long-term trend, in terms of constant currency," Cyrille Fabre said.

The luxury retail industry is going to look quite different by 2025. The prime drivers for these are going to be:

Chinese driven purchases:

Evaluating consumption of personal luxury goods in terms of consumer nationality, Bain & Co estimates that Chinese people will grow from one-third of the personal luxury goods market now to a staggering 46 percent by 2025. Similarly, when the market is evaluated by geography, Mainland China is expected to witness an increase from a 9 percent compound annual growth rate in 2018 to a CAGR of 22 percent by 2025.

E-commerce and Digital:

Online channels are expected to permeate every single purchase in the near future. Bain & Co statistics show that the online channel will represent 25 percent of the market value by 2025, and more interestingly, 100 percent of luxury purchases will be influenced by an online transaction.

Footprint consolidation:

Digital penetration will lead to physical disruption through network consolidation in the luxury retail industry. Stores will soon inevitably change from a point of sales to a point of touch. Fashion and accessories same-store traffic has been declining in recent year.

“Earlier, you had a store and every year the traffic used to increase. Now, stores are reporting either less traffic or the traffic is not increasing at the same pace as it used to before. While people were opening about a thousand luxury stores in 2012, now it’s about 350 stores a year. By 2025, we will begin to see some negative net openings, meaning that the closures of stores will outnumber the openings,” Cyrille Fabre said.

Younger Generations:

The increasingly youthful market across the globe and in the Middle East will disrupt growth plans in the luxury retail segment. New generations are likely to deliver about 130 percent of the market growth by 2025.

“Millennials and the Generation Z already account for about 32 percent of the consumer market. By 2025, they will account for more than half of the market. More importantly, by 2025, almost 100 percent of the rules will be driven by the changing consumer behaviors of Generation Y and Generation Z,” Cyrille Fabre added.

Cultures and Subcultures:

New consumption patterns are bound to arise with the development of new cultures and subcultures in the different regions of the world. The well-defined categories will begin to get a little more blurry, and luxury retail brands will have to be dynamic and responsive in order to adapt with the changing consumption trends. The rise of modest millennials is an interesting example of a prominent rise due to changing cultures – with modest or accepted fashion projected to account for a 40 percent share of in the total women’s luxury ready-to-wear segment by 2025.