The global luxury market is slowing, led by Asia-Pacific. Claudia D’Arpizio of Bain & Company’s explains the drivers, from weaker consumer confidence to trade tensions, and whether this is a short-term dip or a lasting shift.
00:00Now, the global luxury goods market is slowing, with the sharpest decline in Asia-Pacific.
00:06Analysts point to cooling Chinese demand, a trend influenced not only by domestic economic pressures,
00:12but also by wider US-China tensions affecting consumer sentiment and investor confidence.
00:19Now, to explain whether this slowdown is a short-term cycle or a longer structural shift,
00:24we hear from Claudia De Arpizio, Senior Partner and Global Head of Fashion and Luxury at Bain & Company.
00:31Actually, we consider this slowdown partially a consolidation of the growth of the previous year,
00:38partially the result of a market that is now again subject to the external environment.
00:45So we are in an economic slowdown everywhere.
00:49So China is the slowdown of the economy, is unemployment on the young generation from the first time,
00:57real estate crisis, but overall a sense that after a phase of very strong growth,
01:05it's just a phase of consolidation of this growth.
01:08And there is also a sophistication of consumers that after a period of really buying quite heavily these goods
01:14are more in a choosy phase, consumers are questioning the value equation of luxury products.
01:22So sometimes they consider prices too high vis-a-vis products that has been stable in terms of creativity and innovation,
01:30has been a period that has been called quiet luxury.
01:33So with the brands focusing on more classic items, iconic products.
01:40Trade frictions and volatile currencies are piling on pressure.
01:43The ones that manufacture in Asia, they manufacture in Asia more the American players in the accessible luxury positioning.
01:52So players like their Florent Coach, Michael Kors kind of brands,
01:57they are global sourcing and for sure thinking on how to think to a resilience of their supply chain,
02:06exploring also different sources of production outside China, so in general in Asia.
02:13So I think that we are more in a waiting seat to see if the tariffs will stay.
02:19So if the situation, when the situation will stabilize, I think there will be maybe movements on their sourcing strategy.
02:26Looking ahead, the key question is whether this slowdown marks a passing cycle or a more fundamental shift in the industry.
02:34Industry observers say the outcome will hinge not just on economic recovery,
02:38but also on how global brands adapt to shifting consumer habits.
02:41I think that the prospects of this market are quite strong.
02:47So if we look long term or mid term to the growth of the middle class,
02:52we are in a period where we envisage another big wave of creation of middle class coming especially from Asia.
03:01But Southeast Asia with Vietnam, Cambodia, Vietnam are taking an important share of middle class growth also for the investments in production sites,
03:15plus a lot of touristic destination like Philippines, Malaysia, Thailand.
03:22And so we see a lot of development, wealth creation in these markets.
03:29Then the question is if the luxury brands want to serve these consumers that will enter the market from the more democratic price points.
03:39At the same time, we have a question mark on the ability of the brands to offset this period of softness,
03:48reigniting desire and reigniting growth on their customers.
03:54So it's 50% the market condition and 50% the ability of the brands to really intercept this new growth.
04:02I think it's a temporary cycle, but it's a lot in the hands of the brands.
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