After its worst slump in history, the luxury personal goods market has experienced a V-shaped recovery to 288 billion euros in value, concludes Bain & Company in its "Luxury 2022 Spring Update - Rerouting the Future".

"The global luxury personal goods market reaches 288 billion euros in value in 2021 and performed remarkably well in the first quarter of 2022," says Bain & Company, quoted by the newspaper Económico, in a research on the evolution of the luxury market and prospects for 2022.

Luxury brands enjoyed growth in a strong year-end shopping season and maintained momentum in the U.S. and a faster-than-expected recovery in Europe, the consultancy says.

"After its worst decline in history, the luxury personal goods market experienced a V-shaped recovery, reaching 288 billion euros in value. The market benefited from an exuberant year-end shopping season in 2021 across all regions, with a 7% increase over the same period two years earlier in 2019.

In addition, China continued to record double-digit growth last year and Western markets saw sustained local demand - the United States, in particular, maintained momentum.

These are the key findings of Bain & Company, the world's leading consultant to the global luxury goods industry, in its Luxury 2022 Spring Update - "Rerouting the Future."

The study was released in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers' industry foundation.

"Despite significant macroeconomic challenges, including hyperinflation, slowing GDP growth and the Russia-Ukraine conflict, the luxury personal goods market proved resilient once again," said Claudia D'Arpizio, partner at Bain & Company and lead author of the study. "Luxury goods brands have started this year to show especially strong growth, while playing a leading role in the ongoing sustainable and digital transformation of the world," she says.

The year 2022 started strong, with the US and Europe leading growth. "The personal luxury goods market performed remarkably well in the first quarter of 2022, growing 17% to 19% at current exchange rates (13-15% at constant exchange rates) over the same period in 2021," says Bain & Company. This is happening for several reasons. On the one hand, Europe is speeding up its recovery, despite the shadow of war.

"The region is on the road to recovery to 2019 levels, thanks to booming local demand driven by a fierce 'back to normal' attitude and a recovery in intra-regional tourism. The impact of the Russia-Ukraine conflict has so far been limited to local markets, showing limited consequences on overall luxury customer sentiment and spending," says the consultancy.

"The US is tapping into the power of diversity and inclusion. The US luxury market is experiencing unprecedented growth as luxury brands are unleashing the true power of diversity and inclusion, discovering the true potential of the entire American customer base." the statement read.

China's spending is crushed due to strict Covid restrictions, Bain & Company reveals. China showed strong momentum during the Chinese New Year and through March 2022. However, the country's consumption has been challenged with its strict anti-Covid restrictions, which have proven to be much more significant than its policies in 2020. However, local consumer appetite remains strong and will potentially lead the country to recover between late 2022 and early 2023, Bain & Company predicts.

On the other hand, South Korea, also a consumer of luxury goods, is undergoing a profound transformation. The country has increased its size and cultural relevance, replacing tourist spending with local demand. "Winning brands have successfully reinvented their business model in the country to meet the growing local demand and influence," says the consultancy.

Future growth opportunities for luxury brands

The virtual world is an opportunity for luxury brands. "Beyond the growth provided by traditional luxury products, digital assets and the virtual world - the metaverse, social networks and games - will play an increasingly important role in the value propositions of luxury brands," the study states.

Bain & Company predicts that by the end of 2030, digital assets and the metaverse will account for 5% to 10% of the luxury goods market.

Luxury brands have the opportunity to play a key role in shaping the rising virtual worlds by acting as creators and builders, argues the consultancy which invokes the growing relevance of direct-to-consumer channels. Technological disruption favors luxury brands that adopt an uber-channel approach, building a new intimacy with customers by leveraging new and evolved touchpoints.

When it comes to the appeal of sustainability, Bain & Company speaks of the lack of clear sustainability standards, which, along with increased consumer demand for sustainable products and the evolution of sustainability topics, "represent a call to action for luxury brands: innovate in sustainability to build a competitive advantage."

A new future is emerging in the job market, especially for younger generations. This is because luxury brands will need to expand their value propositions, embrace diversity, become talent creators as opposed to talent recruiters, and smartly leverage automation.

The market could reach 360 to 380 billion euros by 2025, the consulting firm estimates. Bain & Company estimates that market growth will reach these amounts, highlighting two possible trajectories for 2022. One is an optimistic scenario, in which the growth trajectory of the first half of 2022 continues throughout the year. In this scenario, the market would reach about 320 billion to 330 billion by the end of 2022, growing 10% to 15%.

The other trajectory is a slower scenario, which projects a potentially lower growth rate due to a slower recovery in mainland China and challenging spending in mature markets caused by inflationary pressures and macroeconomic slowdown. Under this scenario, the market will reach €305 billion to €320 billion by the end of 2022, growing by only 5% to 10% over 2021.

"In recent months, luxury brands have been forced to redirect their futures" said Federica Levato, partner at Bain & Company and co-author of the report.

"The winners will quickly embrace change, ensuring they fully understand the implications of new geopolitical dynamics and cultural trends for all their stakeholders, consumers, investors, industry workers and society at large. Those who take the lead ahead will seize the opportunities presented by the virtual world, the transformation of sustainability, and the preferences of the younger generation," concludes the consultant.