Global luxury market faces massive hit from Covid-19
The world’s luxury market is expected to suffer a major blow from the coronavirus in 2020. Having grown to be worth well over $1 trillion in recent years, new research suggests that as much as $650 billion worth of sales could be lost this year.
According to the Altagamma Worldwide Luxury Market Monitor by Bain & Company, the global luxury market reached a value of $1.38 trillion in 2019. Despite a contraction in fine art sales and fluctuations in jets and yachts, demand for luxury continued to be buoyed by a new generation of middle class consumers in China and many of the world’s emerging markets. Thanks to the mounting coronavirus crisis of 2020, however, much of that growth could be about to be wiped out.
According to a new report by Boston Consulting Group (BCG), the impact on fashion and luxury – a category that includes apparel and accessories, watches and jewellery, and perfumes and cosmetics – will likely be worse in 2020 than during the recession over a decade ago. With total sales dropping between $450 billion to $650 billion from 2019 levels, fashion and luxury retailers could see a plunge between 25% and 35% resulting from store closures amid the lock-down.
Commenting on the findings, Sarah Willersdorf, Head of Luxury at BCG, said, “This is worse than 2008. There’s zero doubt we’re going to have a definite V curve. The question is whether it moves into a U or an L… [On top of the financial shock of the pandemic], to this you have this added uncertainty in the market about the crisis, prolonged store closures which you didn’t have in ‘08, and disruptions to manufacturing.”
According to the study, Southern Europe is expected to suffer the largest drop, seeing a dreaded ‘L’ curve. With sales falling between 85% to 95% between March and May, Southern Europe will likely see a slower bounce back than any comparative market. China looks set to enjoy a quicker period of recovery than other markets – partially because its drop occurred earlier than the other areas, but also because it has long since managed to bring the number of Covid-19 infections there under control.
Sales in North America, the world’s largest fashion and luxury market, are expected to fall somewhere between 75% to 85% compared with last year’s first half. At present, BCG anticipates it will recover to reduce that fall to just 10% by end of 2020 – however the researchers also note that the US government’s steps to stop the spread of the pandemic have been less aggressive than countries such as China and Singapore, which were quick to implement social distancing and data-tracking measures.
Speaking to the Financial Times, Willersdorf added, “The reason the US is expected to return to that level is because of the size and strength of its economy… Honestly, the jury is still out on that.”
