China to drive global luxury market recovery after massive downturn in Q2

China to drive global luxury market recovery after massive downturn in Q2

Luxury goods’ worldwide sales are likely to tumble down further in the second quarter as the coronavirus crisis continue to cripple consumers’ purchasing power around the globe.

The downturn in global sales of luxury goods due to the pandemic has threatened thousands of manufacturers and retailers with the inevitable collapse of the market.

But while the whole world is scrambling to contain the virus, a study shows that China will prompt the sector’s path to recovery.

Personal luxury sector global earnings to dive deeper in Q2

A new study from Bain & Company suggests that, in the next three months, the luxury industry’s total earnings will spiral down by 50% to 60%.

The sector—which includes jewelry stores, clothing shops, beauty products, and accessories—is also predicted to contract between 20% to 35% in 2020, with estimated sales amounting between US$195 billion[AU$301 billion] and $239 billion.

China to drive global luxury market recovery after massive downturn in Q2

But as troubling as it seems, there is a looming possibility that the downturn could get worse as the report is only based on the world’s current situation.

As per Bain, it did not consider the likelihood of developing a vaccine or a “second wave” of COVID-19 cases.

McKinsey and Company has also published a report last April, citing that the worldwide revenue for the global luxury market is anticipated to plummet between 35% to 39% this year.

The study also assumes that if retail stores would remain closed for nearly two months, chances are 80% of fashion firms in North America and Europe will face monetary troubles.

On a positive note, Claudia D’Arpizio, one of the authors in Bain’s report, assured that the personal luxury sector would recover eventually. Positively, it would also reinvent the industry in “a profound way.”

Still, the threat of the upcoming Great Depression, along with rising unemployment rate, keep the possibility of quick recovery at bay.

Chinese consumers are likely to pave the path to recovery

If factors such as consumer confidence level, economic trends, and tourism flows are performing positively in the next years, Bain predicts the global luxury market to return to the previous year’s levels by the year 2022 to 2023.

China to drive global luxury market recovery after massive downturn in Q2

Surprisingly, the consulting agency also anticipates Chinese consumers to lead its recovery. Bain explained that people in China appear to show “willingness to recover purchases that are not made during the lockdown.”

Another variable where the assumption was based upon is the country’s approach in mitigating and keeping coronavirus under control for now.

Popular brands are reportedly seeing a surge in demand as well as China finally eased stay-at-home measures. The number of store visits, on the one hand, fell half compared to last year.

China to lead the market’s growth

China is also expected to drive the growth of the luxury goods industry.

According to the report, Chinese consumers are likely to lead the high outturns, with 50% purchases coming from mainland China.

The country accounted for almost 35% of global luxury spending last year, but Bain suggested it will increase exponentially despite the recent lockdowns and the threatening presence of COVID-19.

At the same time, the consulting firm expects that, by 2025, the market would reach new high levels between 320 billion euros and 330 billion euros.

China would account for half of the global luxury spending worldwide, while the rest of Asia will follow closely. On the other hand, the United States, Europe, and Japan will experience a “dip and stabilization” phase before recovery.

Images courtesy of Rod Waddington, Peiyu Liu/Flickr

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