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Translated by
Nicola Mira
Published
Apr 1, 2020
Reading time
2 minutes
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Bain & Co. estimates luxury industry revenue set to slump by €60-€70 billion in 2020

Translated by
Nicola Mira
Published
Apr 1, 2020

The Covid-19 axe is falling on the luxury goods industry. Management consultancy firm Bain & Co. is forecasting a global market slump comprised between 25% and 30% in Q1 2020. On an annual basis, the estimated revenue loss is set to range from €60 billion to €70 billion (equivalent to a 22 to 25% downturn), with a disproportionate impact on profits.


The Dior Fall/Winter 2020 show in Paris


The Q1 figures reflect the sudden slow-down of consumption in China, the first Covid-19 hotspot and a country that in 2019 accounted for 90% of the luxury market’s global growth. Following the pandemic’s spread, the global scenario has worsened, as the emergency is affecting the world’s leading markets, starting from Italy, one of the industry’s manufacturing hubs.
 
“It’s likely that the effects [of Covid-19] on the luxury industry will still be felt in 2021, with different magnitudes and recovery speeds in the various countries affected,” said Federica Levato, a partner and the leader of Bain & Co.’s fashion and luxury division in Italy.

“China and the Asian market in general could post the strongest recovery, and positive signals have already been detected in the last few weeks. Japan, Europe and the American continent are instead likely to suffer a more prolonged hit before stabilising at pre-crisis growth rates, depending also on real economy trends,” she added.

Forecasts are still tentative, because the pandemic is constantly evolving, but the recent past suggests a cautious optimism is warranted, since the sector already weathered storms like the 2008 financial crisis and the SARS outbreak in 2003. Looking at the silver lining, the current global health emergency may turn out to be an opportunity for companies to improve and become more resilient.

According to Levato, “the fundamentals are unchanged and robust, and will drive the market back on the growth path in the medium to long term: from growing demand by China’s middle-class consumers, to the new generations’ greater propensity to buy luxury goods, and the e-tail channel's constant evolution.”
 
In the wake of the crisis, China and the e-tail channel will gain more influence. Online shopping will remain popular even after the end of the isolation period. Consumer concern for environmental and social sustainability will strengthen, while the ethical choices of brands will become the main influencers of purchasing decisions. Finally, luxury labels will have to deal with a generalised increase in local pride and with a growing need for inclusion by consumers.

“The ultimate goal [for brands] is to re-appraise the key factors of success in their business, in order to stand out as stronger, more innovative and more proactive, deploying a clear and well-articulated action plan in every aspect of the business model,” said Levato. 
 
In conclusion, Bain & Co.’s advice to luxury goods companies is to streamline their decision-making and operational models, devise a consumer-driven strategy, re-think the supply chain in terms of flexibility and sustainability, boost their omni-channel eco-system and internalise their digital marketing capabilities.

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