Deloitte: Luxury market growing in 2016, but at slower rate than before

400The global luxury goods sector is expected to grow more slowly in 2016, at a rate many retailers may find disappointing, according to the third “Global Powers of Luxury Goods” report just released by Deloitte Touche Tohmatsu, which examines and lists the 100 largest luxury goods companies globally, and provides an outlook on the global economy, an analysis of merger and acquisition activity in the industry and discusses the key forces shaping the luxury market.

According to the report, the growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well and there are pockets of opportunity across the globe. India and Mexico for example are growing quickly, and the Middle East offers further growth potential, it states.

The report notes that in the past year the value of the U.S. dollar rose against most major currencies, driven by low oil prices, the relative strength of the U.S. economy, expectations of tighter U.S. monetary policy, and the easing of monetary policy in Europe and Japan. For luxury goods companies, the strength of the dollar has meant increased purchasing power for U.S. consumers and higher import prices for consumers in other countries. However, the dollar has retreated since the start of 2016, providing relief to emerging markets that had boosted their own interest rates in response to dollar strength.

For the world’s leading luxury goods companies, low oil prices was mostly been good news, the report said. Lower fuel costs have translated into increased purchasing power for consumers and higher inflation-adjusted wages in most major markets. On the other hand, the sharp decline in capital spending by energy companies has had a negative impact on business investment in the United States, Canada, and other major oil producing countries. Low oil prices have also resulted in weak economic growth in a number of oil-exporting countries, such as Canada, Russia, Venezuela and Malaysia.

The report says that the luxury goods sector has now passed the mid-point of what it refers to as the “decade of change.” The first half was characterized by the Chinese consumer and the explosion in the use of digital technology. The second half of the decade is expected to be characterized by discipline. The external environment is likely to change in a number of crucial areas: an evolution in consumer buying behaviors; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy. All of these factors create opportunities for the luxury goods sector, it stated.

Demand for luxury goods is still growing profitably, the report said, with sales for the world's 100 largest luxury goods companies continuing to grow despite economic challenges, although the rate of growth was less than in previous years.

Italy remains the leading luxury goods country in terms of number of companies, with 29 companies in the Top 100, more than double the number based in the United States, which has the second-largest number. However, Italian companies account for only 17 percent of luxury goods sales in the Top 100. The predominantly family-owned Italian companies are much smaller, with average luxury goods size of $1.3 billion, compared to $3.1 billion for U.S. companies.

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