LUXURY GOODS WORLDWIDE MARKET STUDY Fall Winter 2015 A time to act How luxury brands can rebuild to win By Claudia D Arpizio Federica Levato Daniele Zito and Jo lle de Montgolfi er Claudia D Arpizio and Federica Levato are Bain it is now the third biggest market in the world after the US and Japan The most popular travel destinations for Chinese luxury shoppers shift typically to Europe South Korea or Japan in response to currency fl uctuations which create temporary favorable price gaps Chinese consumers play a primary role in the growth of luxury spending world wide They account for the largest portion of global purchases 31 followed by Americans 24 and Europeans 18 Wholesale still dominates but company owned retail and e commerce are growing faster Wholesale is still the dominant selling channel within the personal luxury goods market capturing 66 of the total market However retail continues to gain share driven by network expansion 600 new directly operated stores opened globally in 2015 a decline from the 750 opened in 2014 and growth in same store sales 13 at current exchange rates The wholesale channel s slower perfor mance stems from three factors the ongoing retailization of luxury converting franchised locations into company owned stores or joint ventures the lackluster performance of US department stores across product categories particularly in leather goods and the decreasing sales of Asian watch retailers which are coping with excessive stock and a reduction in the overall store network E commerce grew to a 7 market share in 2015 nearly doubling its penetration since 2012 Special ized e commerce players are outperforming the market globally with Chinese e tailers progressively extending their geographic reach and gaining share on a global basis The e commerce sites of Euro pean and American retailers such as department stores continue to grow a response to customers demands for an omnichannel experience Luxury brands are losing share online overall with highly Luxury Goods Worldwide Market Study Bain they now account for only 10 Luxury consumers in mature markets such as Europe the US and Japan tend to purchase locally However growth in these regions increasingly depends on spending by tourists 2 Regional highlights Luxury Goods Worldwide Market Study Bain China joined the global luxury podium Source Bain mainland China accounts for 20 of global Chinese shoppers purchases Source Bain luxury goods purchases in New York City outweigh those across all of Japan Source Bain Japanese consumers who accounted for a quarter of the market in 2000 now make up 10 of global purchases Source Bain Europe contributed 80 of the growth of Asia Source Bain consumers from mature markets buy primarily domestically Regional tourists Source Bain they remain the fastest growing Source Bain Europe is buoyed due to touristic purchases in brands own stores The impact of smartwatches remains limited to the premium segment not competing with high end time pieces playing on different value dimensions Luxury brands launch their own smartwatches and smart accessories for watches with limited volumes Luxury branded jewelry continues to outperform the overall category Strong performance of Absolute and high ticket items Jewels remain among top preferred investments due to intrinsic value of raw materials The global demand for diamonds is still growing but at a more modest pace particularly in Asia as a consequence of the slowdown started last year and the protests in Hong Kong For new store openings Asian retailers rebalance the product offer toward more jewelry than watches Year over year growth at current exchange rates Year over year growth at constant exchange rates 2013 36 2014 36 2015E 38 0 7 6 8 18 6 Luxury Goods Worldwide Market Study Bain skincare s performance is lackluster 2013 23 2014 24 2015E 27 Source Bain Company Fragrances Cosmetics Luxury fragrances market 2013 2015E billions Luxury cosmetics market 2013 2015E billions Mature markets post mixed performances with Chinese and Middle Eastern demand continuing to rise The growth in mature markets is mainly driven by price increases despite an increasing weight of promotions The top end of the market exclusive lines and essences and artisanal niche brands are outperforming Growing interest for customized products Brands refocus storytelling on scents ingredients and nose Travel sizes experience a sustained trend Makeup is the main growth engine in the category offsetting the overall performance of skin care Sound trend of makeup across subcategories Devices show strong dynamism within skin care while other subcategories suffer Premium Korean brands are increasingly popular among Asian consumers Western players looking for potential acquisitions Year over year growth at current exchange rates Year over year growth at constant exchange rates 2013 20 2014 20 2015E 23 2 11 2 2 15 1 Luxury Goods Worldwide Market Study Bain Company Inc Page 25 The main challenge facing m