For Bain & Company, leather goods and footwear are the engines of luxury that will have more sales in 2021 than in 2019. Euromonitor International estimates that the turnover of leather goods will grow from USD 72 billion in 2022 to USD 100 billion by 2027. A boom that also shows particular strength in perspective. Here’s why
When the world economy is unhealthy, hit by inflation, and sees the spectre of recession, some start buying groceries at discount stores, turn off light bulbs and turn down their thermostat. And there are also those who stock up on luxury handbags, taking advantage of the euro-dollar currency parity. At the end of the first half of 2022, the designer labels have snubbed all signs of a financial crisis because their turnover has hit new records with even excellent prospects. How did they manage this? Thanks (and above all) for focusing their business on two precise product segments: leather goods and footwear, which have proved (or, perhaps, confirmed) to be the engines of luxury and the market. Engines that, analysts say, are unlikely to die out. On the contrary, they could increase their revs.
The engines of luxury
Leather accessories, in particular, are seen as an investment by consumers both for their longevity and for the potential financial return of the purchase by placing it in the high-end resale circuit. For example, both the Birkin by Hermès and an iconic Chanel handbag can be resold online at a (much) higher price than in a boutique. This buying and selling activity is prevalent among those under 25 years of age and has become much more commonplace with rising inflation, says the Luxury Resale Report 2022 by The RealReal (one of the best-known specialised portals). Not to mention that designer handbags and small leather goods are the most recognisable products a brand can sell.
Moral: despite the current economic environment and rather gloomy scenarios, according to market research firm Euromonitor International, global consumer spending in the handbags and small leather goods category is set to grow from an estimated USD 72 billion in 2022 to USD 100 billion by 2027. The US and China, which currently account for more than half of total sales in the category, will continue to drive future growth. Therefore, if estimates prove correct, sales of handbags and SLG (Small Leather Goods) are expected to grow even faster over the next five years than before the pandemic. Driving this will be pent-up consumer demand and new products in various price ranges and different functionalities launched by brands to attract new customers.
Bain & Company explains
Even Bain & Company has no doubt: that leather goods and footwear are the two drivers of luxury. Claudia D’Arpizio, the senior partner at the financial analysis firm, said that sales of handbags and shoes allowed the luxury to exceed 2019 levels. In fact, 2021 ended with sales 2% higher than in 2019. On the other hand, the premium segment posted revenues 10% lower last year than two years earlier. More generally, said D’Arpizio, the fashion segment that sums luxury + premium will return to pre-pandemic levels by the first half of 2023, a year earlier than expected. This is all thanks to the performance of leather goods and footwear.
The value of loyalty
Why will the hunger for luxury handbags continue in the US and China? In addition to the greater affordability of these two markets, research by the Business of Fashion found that consumers in both countries are pretty loyal to the handbag category because it offers them an appreciated status symbol. According to the same research, about 40 percent of respondents in the US and 50 percent in China belong to the category of consumers ‘engaged’ with leather goods. In other words: they have purchased leather goods produced in the last year or intend to do so in the next. Loyalty does not waver in the face of changes in purchasing behaviour, evolving tastes, and, we would add, rising prices. Finally, the research highlighted the contribution of the new resale and rental businesses that have grown significantly, providing greater access to new luxury customers.
Crowding and fierce competition
The natural consequence of all this is that the handbag and shoe market is becoming increasingly crowded. There is fierce competition not only between historic luxury brands but also between them and emerging brands that are able to compete with products with the same level of craftsmanship as luxury brands but at significantly lower prices. With an extra (potentially) winning factor: they have the virtue of being niche and non-inflated. In addition, these outsiders often inspire their own streetwear collections, which are just as coveted and rare as the more classic and traditional luxury brands. Under these conditions and with these prospects, the last challenge – mentioned in the first lines – is the growth of the rental and second-hand purchase market. Luxury brands are starting to enter these markets, but they still have to understand how to exploit these new opportunities and avoid the possible risks. (mv)