Luxury forecast for 2021

In 2021, the winds of recession are expected to abate. Matteo Lunelli, President of Altagamma (the committee of Italian luxury brands), says, “2021 will mark the beginning of recovery, although a gradual return to pre-crisis levels is expected only from 2022. According to Altagamma Consensus experts, growth is estimated to average 14% in 2021 across all sectors, with a consolidation of both e-commerce (+22%) and the Chinese market (+18%) - the ultimate driver pointing the way out of the crisis. The capacity to react to the major changes underway will be crucial for our companies.” The sector will be more dynamic than ever, and only the brands that put new development strategies in place will emerge stronger from this epochal revolution. “Over the next decade, this sector will change radically. The luxury industry will turn into a market for cultural and creative excellence,” says Claudia Arpizio, partner at Bain & company.

How did the pandemic hit the countries that matter the most to the luxury market? Differently, it turns out: bucking the downward trend was mainland China, which will actually close the year up 45% in the luxury market, now worth 44 billion euros – a boom driven primarily by a real explosion in domestic consumption. By contrast, Europe suffered the largest decline, mostly as a result of the dramatic downturn in tourist shopping, which translated into a 36% drop to 57 billion euros. In the United States the luxury market shrank by 27%, to 62 billion euros.

Significantly, this year COVID-19 has brought about major changes in online luxury sales worldwide, boosting total online sales to 49 billion euros, a major increase compared to 33 billion euros in 2019.

So, what can be expected for 2021? The Altagamma Consensus study, based on 2020 market dynamics and drawn up with the contribution of 27 international analysts, forecasts that the emergence of new drugs and vaccines will bring a recovery, albeit a slow one. In terms of product categories, the strongest growth will be in leather goods (+16%), followed by cosmetics (+15%) – with within that segment, skin care performing better than make-up.

Clothing and footwear, which are less dynamic due to overstock and possible discounts, will reach a 14% increase. Watches, hit hard by reduced traveling among retail customers as well as the inability to recreate digital experiences as rich as those offered in stores, will clock in at an increase of 11%. Jewelry sales will increase by +13%, partly driven by the major brands and their strong presence in the Asian market.

As for distribution channels, physical multi-brand stores – which had already been impacted before the pandemic – will continue to suffer: in light of the sharp drop in shopping tourism, they suffered a 40% decrease in 2020, and are expected to rebound in 2021 by only +8%.

The largest increase will come from digital sales from brand websites, with an expected 20% rise, while physical sales in monobrand stores (a channel considered important for the high-end segment) are expected to increase by 15%, this following a 20% drop in 2020. According to Consensus, sales of multi-brand digital platforms will increase by 18%.

It is the digital arena that is the high-stakes game where the biggest bets are riding. For proof, look no further than the recent agreement between the giants of online luxury Alibaba, Richemont and Farfetch in China, a real game-changer in the dynamics of the luxury market.

Geographic regions will also see great disparities. In 2021, Asia will be the fastest growing market, riding a wave of 17% growth driven primarily by China, the first country to be hit by the virus and the first to recover. The Chinese are now the world's leading luxury consumers, and in 2021 the market can expect to see 20% sales growth from them, led in particular by new luxury consumers, including an increasingly dynamic female clientele.

Japan will follow suit, with an 11% increase due to a strong local clientele and travelers from China. North America is expected to see 14% growth and remain a solid market that will be the fastest to react to early positive signals by purchasing luxury goods. For Europe, which has suffered the most from the lack of tourists (50% of luxury purchases), the forecast is a 12% increase; and finally, Consensus Altagamma forecasts growth of 10% for Latin America and 9% for the Middle East.

The pandemic will continue to be a source of uncertainties in 2021. The longer barriers to travel remain in place, the more this may encourage the consumption of luxury goods as the preferred alternative to spending on tourism and hotels. Whatever happens, 2021 will be a year of change and challenges: only those brands that will successfully establish themselves as drivers for change will eventually be able to consolidate their position not only in terms of luxury goods production, but also in the ability to support and mobilize their audiences on ethical and environmental causes.