2023-07-16 09:11:45
The luxury market does not understand crises or, at least, not those suffered by the average citizen. It suffered the rigors of the pandemic lockdowns of spring 2020 like all industries and economies in the world, although it has been one of the few to recover in a relatively short period of time. So much so that the business of high-end goods and articles has increased by 70% in the last decade alone. In the same period, the number of consumers of these products globally amounted to nearly 400 million -in Spain there were 237,400 people with high net worth (HNWI) at the end of 2022-, which already represents 5 % of the planet’s population.
Thus, despite lowering its sales by 26% in the first year of the covid, the luxury industry improved by 12% in 2021 to enter 1.15 trillion euros and in 2022 it achieved additional growth of 20% to add 1, 38 trillion –353,000 million in goods and personal items–, a record figure that exceeded their pre-covid accounts. Although the best is yet to come, advise Claudia D’Arpizio and Federica Levato, partners at the global consulting firm Bain & Company. “This market seems to be better prepared to face a possible global economic crisis like that of 2008-2009,” they say. In fact, they expect it to continue “expanding, at least until 2030.”
Other experts abound in this, such as Josep María Catalá, professor of Economics and Business at the UOC, for whom this sector could “reach growth of up to 60% compared to 2022.” And along this path, in addition to China –where 180 million luxury consumers emerged between 2014 and 2022–, “the Persian Gulf, Southeast Asia and India have gained importance,” says Xandra Falcó, president of Círculo Fortuny – a reference association of the high-end in Spain–, which adds two notes: Indian luxury consumer spending will almost quadruple from 2022 to 2030 and that country is already the fourth in the world with the most millionaires.
A continuous expansion of the high-end industry is expected until 2030, pushed by India and the emerging countries of Africa
“To attract these markets -says Falcó-, Spain must drive the spending of long-distance visitors towards new subsectors”. In 2022 it received six million high-impact tourists (6.5% more) -between 2015 and last year its influx has grown by 20%, according to a report by the McKinsey consultancy for Círculo Fortuny- who generated a business of 20,000 million euros , almost 1.9% of the Gross Domestic Product (GDP) compared to 0.9% on average in Europe. In fact, high-end tourism has increased its revenue at the national level between 5% and 8% per year in the last six years, practically doubling the rate of increase of traditional tourism, although in absolute terms these luxury travelers only represent 6% of those who visit Spain.
Potential increase in consumers
The specialized consulting firm Bain & Company is not forgetting the emerging economies of Africa as source markets either. According to his latest study, there the potential increase in high-end consumers would be ten million in the present decade (5% more), compared to 25 million among Asians (15% more) and 40 million among those of Indian origin ( 20% more). Although the recovery of China, which from 2014 to 2022 increased its customers of this type of products and services by 40%, will be a key factor after last year this select market contracted in the Great Dragon for the first time in the last lustrum. It did so by 10% due to the confinements of the covid – until last January it did not reopen its borders after 33 months of harsh restrictions – and the drop in consumer confidence. The most affected divisions were luxury watches, clothing and ‘lyfestyle’, with falls of 25%.
This year it is expected that almost 20 million Chinese will make international trips, an estimable figure although only one eighth of the 154 million of their compatriots who did the same in 2019 spending 254.6 billion dollars, 17% of the world total, according to the Organization Tourism World (UNWTO). And the GDP of the second largest potential world will grow in 2023 a still modest 5%.
Spain, the second international tourist destination, aspires to increase the weight of Chinese travelers (699,000 before the pandemic, 0.8% of the total), since their average expenditure per person was very high:_2,500 euros, double that of British and German. “The greater the evolution towards high quality in all sectors (from travel to gastronomy through ‘retail’, culture and leisure), the better the economic impact will be,” says Ramón Solé, director of the MBA Luxury at EAE Business School–. Raising the luxury offer is the direction to be more competitive as a country. Two pieces of information would suggest that it is going in the right direction: sales of luxury homes (more than two million euros) shot up 55% in Spain in 2022 -according to data from the Hiscox insurer- and the number of five-star hotels it’s up 27% since 2015, so they’ve made eight out of ten starts in the last four years.
an inelastic demand
A priori, the difference in prices between the two markets and, in general, between the EU and China, could be a drag due to the sharp increase in European inflation due to the war in Ukraine. However, within luxury it is not such a significant problem “because of its inelastic behaviour, that is, even if its prices rise, consumers will continue to buy them as it is not their first variable to consider”, explains Professor Catalá. Enrique Porta, partner responsible for Consumption and Distribution of KPMG in Spain, has an impact on this, adding three concepts that characterize the sector: “exclusivity, scarcity management and aspirationality”. In any case, there has been “a slight decrease in profitability,” add D’Arpizio and Levato.
The LVMH group is a clear example of the strong revaluations that the main companies in the luxury business have obtained this year. Reuters
By subsectors, since the pandemic those that have grown the most within luxury have been furniture and design (24% more), wines and spirits (26%), planes and yachts (12%) and ‘gourmet’-restaurants ( 8%), says the president of Círculo Fortuny. And he points out another fact to take into account: “social networks have democratized luxury”, where the progressive advance of electronic commerce will lead it to reach a share of 30% in 2025. Although experts are more committed to a mixed experience for the customer (‘phydigital’) between the physical and the web.
The so-called discreet luxury (‘quiet luxury’) is also gaining weight as a trend, “where the quality and excellence of the product is rewarded and paid for, although without unnecessary stridency,” explains Enrique Porta. “This makes it recognizable -he adds- only for the connoisseurs or initiates”. In this sense, some experts already see it as a way of distinguishing the so-called nouveau riche from the traditional high incomes. At the same time, the new generations are increasingly resorting to other less expensive formulas to access their favorite brands such as renting, paying for use or even second hand, and not only for economic reasons but also for social sustainability. .
Investors, in any case, trust the strength of the luxury industry -the opening of high-end stores in Europe rose 77% in 2022 (its world share is already 23%, only behind China), according to the real estate consultancy Savills- and keep it at stock market maximums. The S&P Global Luxury index, which analyzes 80 leading firms in the sector, has appreciated 39% in the last twelve months. And the selective Stoxx Luxury, which brings together the ten largest high-end companies, has done so by 63%. The clearest example is the LVMH group, owner of brands such as Louis Vuitton, Dior, Loewe, Bulgaria or Tiffany’s. At the end of April, it smashed the European price record, exceeding half a billion dollars; today it is around 447,200 million, 47% more than a year ago.
Attendees at a business tourism fair held in Madrid. Ifema
Business trips, the last to recover the pre-pandemic level
Almost all the segments linked to tourism are already close to recovering the pre-pandemic figures. But the furthest behind in this is precisely the most profitable: business trips, for which teleworking and health restrictions were a strong blow.
However, their expectations for this year are clearly positive (with an average occupancy of more than 75% in congresses and conventions), although the estimate of reaching the figures for 2019 in 2024, the last year before the covid crisis, is maintained. . It would be about reaching the 12,314 million euros that the meetings and events industry generated then, compared to the 10,435 million with which it closed 2022, according to the Spain Convention Bureau, the network that groups 63 congress destinations within the Spanish Federation of Municipalities and Provinces (FEMP).
Corporate tourism “played a crucial role in world tourism activity,” says Diego Santos, a professor at EAE Business School. He now does not doubt his recovery, although he estimates that he will leave behind “certain types of products and meetings due to their high costs and little added value.” The latter is a key aspect, since the average daily expense of the meeting traveler in 2022 was 335 euros, triple that of the vacationer, says the Braintrust consultancy.
Although inflation also plays against here, in 2023 there are 105 international fairs scheduled in Spain -the first European destination in this area- compared to the 94 that took place in 2019. The forecast revenue this year is 12,100 million euros.
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