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Global Luxury Market: Resilience or Soft Landing

12 November 2019SectorsEmerging Markets

The Global Luxury market is forecasted to grow to US$444 billion (RMB3.1tr) by 2025, with Chinese customers expected to account for over 40%. However in the near term, the luxury goods sector could see more volatility as a number of investor concerns and potential headwinds have re-emerged.

These factors include:

  • ongoing protests in Hong Kong (which could shave off ~1ppt of industry growth in 4Q19E),
  • unresolved US-China trade negotiations,
  • potential US tariffs on European luxury goods (including wines and spirits),
  • Brexit uncertainty,
  • increase in consumption tax in Japan and
  • FX volatility (in particular further RMB depreciation).

Bright Spark in Travel Retail Shopping:

  • Duty free stores are Chinese consumers' preferred channel for luxury shopping especially for young consumers given attractive pricing, and they continue to benefit from this consumption upgrade.
  • Citi analysts expect global travel retail (duty- & tax-free) shopping to exceed US$130bn by 2025E, at an 8% CAGR, with China's share doubling to 16%.

Global Luxury Market: Resilience or Soft Landing

Stay selective:

  • Citi analysts prefer companies in the soft luxury segment (leather accessories, bags and designer clothing) over the hard luxury segment (jewelry and watches) as the latter is traditionally more impacted by macro uncertainty and swings in consumer sentiment.
  • Within soft luxury, Citi analysts also appreciate continued efforts by mega-brands to reinvest the dividends of growth to protect barriers to entry and stay ahead of the game.

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