The 21st Altagamma Observatory, held on November 15th in Milan, confirmed a trend that we at Scent Company have noticed at first hand, as we work with the finest luxury brands on the international market. Namely, that the high-end segment is undergoing strong growth at global level.
Since 1992, Fondazione Altagamma has been bringing together Italian companies in the high-end cultural and creative industries, as well as worldwide ambassadors of ‘Made in Italy’ products. The foundation presented two reports at its November conference: the Altagamma-Bain Worldwide Luxury Market Monitor and the Altagamma Consensus 2023. The latter is a forecast on personal luxury goods consumption in 2023, drawn up with the help of expert financial analysts.
Stefania Lazzaroni, General Manager of Altagamma, Claudia D’Arpizio and Federica Levato, Senior Partners at Bain & Company led the conference, which was attended by Adolfo Urso, Minister for Business and Made in Italy. Representatives of leading luxury brands also spoke at the event, including Yves Saint Laurent, Automobili Lamborghini, Pomellato Group, illycaffè, Alessi and Global Blue.
So, what does the data tell us? Without a doubt, that 2022 was a record year for the luxury market on several fronts. It bounced back from the crisis triggered by the pandemic, and in fact outdid pre-Covid figures. In 2022, the luxury market grew by 21%, to €1.4 trillion. Sales of personal luxury goods are set to reach € 353 billion by the end of the 12-month period, growing by 22%.
Given such results, the outlook for 2023 is bright. During the coming year, margins for high end businesses are expected to grow by 6%, reaching 8% if we consider only those brands whose target is Ultra High-Net Worth Individuals. Performance will only be minimally affected by macroeconomic challenges such as geopolitical tensions, inflation, rising energy costs, scarcity of raw materials and diminished spending power for certain consumer groups.
Looking at longer-term forecasts, it becomes clear that these are definitely not passing trends: in 2030, the market value of personal luxury goods is set to rise by 60%, reaching €540-580 billion. While Generations Y and Z have boosted the market significantly so far, in 2030 the spending of Gen Z and ‘Gen Alpha’ is predicted to grow some three times faster than that of other generations, due to a more precocious, marked interest in luxury in these consumer groups.
In this global outlook, the value of Made in Italy and our country’s excellent manufacturing industry is clear. The importance of high-end goods is not only expressed through the success of Italian prestige and manufacturing knowhow around the world; the nation’s luxury businesses are a driving force for the entire Italian economy, and make up a significant proportion of GDP.
Continuing our analysis of the interesting reports produced by Altagamma, we can focus on trends in specific geographic areas. The Middle East is forecast to grow by 7%, and Europe by 5%, where lower domestic demand will be offset by spending by international tourists, especially visitors from the US and the Middle East. The same 5% growth rate is predicted for the United States, while for Japan and Latin America the figure is 6%.
Forecasts for the Chinese market and Asia in general are harder to make. However, the re-openings and rebound effect could boost sales by 9%. Indeed, China is one of the largest luxury markets, driven mainly by the affluent middle classes, new cities, and the younger generations.
Also forecast on the global markets is a widening of the gap between richer and less well-off consumers, due to the global macroeconomic conditions. The “middle class” is feeling squeezed, with the exception of the Chinese, as mentioned above, which benefits from its government’s “Common Prosperity” policies. In 2023, Chinese consumers will be the best performers (+10%).
Across Asia in general, consumption will be up 8%, while Japanese and American consumption is set to rise by 5%. Meanwhile, rising costs and inflation will impact European consumption, which stands at +4%.
Accessories will be the leading product category in the luxury sector, continuing their long-term upwards trend. For example, +7% is predicted for footwear, and +8.5% for leather goods. Meanwhile, clothing will grow by 6%, with around the same figure for beauty (+5.5%), while jewellery will jump by 8% and watches by 5%.
The most thriving distribution channel in 2023 will once again be retail, both physical (+7%), and digital (+8%). The reasons remain those which have led luxury brands to invest in these channels so far, implementing an omnichannel strategy: a direct relationship with consumers, greater control over touchpoints, the possibility to create immersive brand experiences and emotional architectures that have a strong impact on shoppers’ purchasing choices.
Scent Company’s partnerships with luxury brands enter into play at the most delicate moment of brand communication: direct contact with the end customer. This is a crucial moment for defining an exclusive brand identity that is fulfilling and unforgettable for the consumer, both on a rational and subconscious level.
More and more high-end businesses are choosing to harness the science of scent to build their marketing strategies and sustain the trends describe above, in the mid and long term.
