China is fastest growing region in fashion luxury market

07 May 2018 5 min. read
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The global luxury fashion goods sector can expect to see strong growth in the near future, according to a recent study by EY-Parthenon. Valued at nearly 420 billion in 2016, the global market for high-end shoes, apparel, watches, and bags is expected to grow to 500 billion by 2020, with the premium segment overtaking the top luxury segment as the main driver of growth. Notably, China is expected to remain the fastest growing market for luxury fashion.

Prada handbags, Patek Philippe watches, Chanel gowns, Jimmy Choo pumps: signifiers of money and status, the luxuries of the wealthy and super-wealthy. While high-end ‘traditional’ luxury fashion products continue to account for the bulk of the market, a new report from EY-Parthenon – the strategy consulting division of Big Four firm EY – posits that lower-end ‘premium’ brands like Diesel, Guess, Tommy Hilfiger, and Calvin Klein are the emerging engine of luxury fashion growth.

The researchers explain that for the past decade the high-end traditional brands were driving market growth, boasting an average annual growth rate of 12% from 2009-2012. However, traditional luxury’s growth rate plummeted to 2.8% from 2012-2016, while ‘premium’ declined only slightly to 4.4%. EY-Parthenon predicts that ‘premium’ will have the highest segment growth rate from 2016-2020, posting 6%, as opposed to 3.4% for ‘luxury.’ As a result, the consultancy has labeled the premium segment as the emergent growth driver for luxury fashion.Global luxury fashion market size

Product categories

Accessories and shoes appear to be the dynamic driving force of the luxury fashion market, in both the luxury and premium categories, with expected growth rates of 11% and 6% for luxury shoes and accessories between 2016 and 2020, and 7% and 6% for premium shoes and accessories in the same period. The clothing category is also expected to grow at a healthy rate for both segments.

However, EY-Parthenon singles out the watches and jewelry category – with a global market of about €140 billion – as one where high-end luxury can expect to lose ground. Indeed, the report predicts a -1% growth rate for luxury watches and jewelry – the only negative projection across the luxury fashion market. EY-Parthenon explains that the top end luxury segment is not as ‘dynamic’ as in the past, leaving an opportunity for premium products to gain ground. Premium watches and jewelry are expected to have a growth rate of 5% between 2016 and 2020 – 6% higher than the stagnating luxury segment.Growth of luxury fashion products

Regional variation

The US and Europe remain the largest markets for luxury fashion, with €131 and €109 billion in sales respectively. The researchers expect the US premium and lower-end luxury segment to have an average growth rate of 6% between 2016 and 2020, and a more modest 3% in traditional luxury. Europe’s premium market is expected to lag in its growth rate compared to the US: 3% for premium and 2% for luxury in 2020.

China, however, is the fastest growing market for luxury fashion in the world, posting 13% growth in the luxury segment and 10% in the lower-end luxury and premium segment in 2016. And while it only accounts for 10% of the luxury fashion market, China is already the largest consumer of luxury goods generally, at 32% of the global total. A recent report from McKinsey & Company expects China to account for 44% of global spending on luxury cars, hotels, fine wines, and fashion by 2025 – reaching $150 billion – while EY-Parthenon expects China to remain the fastest growing market for luxury fashion, seeing 3% luxury segment growth and 7% premium growth – beating out the growth rate of the US market by one percent.

In terms of consumer behavior, EY-Parthenon describes Chinese luxury customers as discerning ‘mix and match’ shoppers, mixing high-end fashion with lower-end premium products – a Prada bag with Lacoste sneakers – for example. This trend is driving premium segment growth in China, with the aforementioned 7% per annum expected growth rate between 2016 and 2020. Millennials, worldwide, are particular proponents of ‘mix and match’ shopping, and in China they already account for 30% of luxury retail sales - driving roughly 85% of the growth in the personal luxury goods market.

Globally, the report predicts a slowdown in the traditionally luxury segment, with the growth rate decreasing to 2% by 2020. In contrast, the premium and lower-end accessible luxury segment is expected to continue surging higher, increasing from 7% growth in 2016 to 8% in 2020.Luxury fashion market size by region

Luxury slowdown, premium surge

The report authors identify two main reasons why the top end luxury segment – which boasts the most exclusive and expensive brand names – is losing ground to the more modest premium segment: the popularity of ‘mix and match’ and the ‘casual’ look. While the consumer trend of “mix and match” is especially popular among Millennials, traditional consumers of luxury fashion are more likely to be tempted by premium fashion – and even the clean fast-fashion of retailers like Uniqlo and Primark. Instead of a ‘total look’ of high-end luxury, less costly items are mixed into the consumer’s outfit. And with the urban middle class expected to reach 1.1 billion people in China and India by 2032, the premium market can expect to be powered to even higher rates of growth in the future.

The popularity of the ‘casual’ look – down jackets and sneakers, for example – has also been a boon to the premium and accessible luxury segments. In 2016, global sneaker sales amounted to €3 billion in the luxury segment, but sales were more than double (€7 billion) in the premium and accessible luxury segments. Apparently it makes less sense to purchase Louis Vuitton sneakers, since the extremely popular variety of footwear is a traditionally cheaper product.