Luxury goods: Goldman Sachs forecasts 4% average growth for next 10 years

By

Dominique Muret

Translated by
Nicola Mira

Published
Sep 30, 2016

The luxury goods industry is expected to hold a steady course over the next two years, and to start recovering in the medium-long term. These are the prospects outlined by Goldman Sachs analysts in the merchant bank's latest luxury market report. The sector's growth rate in 2016 will be zero, while only a 1% increase is expected for 2017. Upon closer inspection though, the outlook varies by region, sales channel and brand.

For the long term, the US merchant bank's research department has forecasted a 4% average yearly growth rate between 2015 and 2025, still driven by affluent consumers and the middle classes, chiefly in China and the rest of the world.

Sales of luxury goods products are expected to rise 4% this year and the next. In geographical terms, the European growth rate will rise from 0 to 1% in the same period, while Japan will improve from -2% to ­+2%. In Asia-Pacific, consumption of luxury goods will be stable in 2016, and will increase by 2% in 2017.

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Luxury goods store sales will progress from -1% to +1%, while online sales will rocket up from 8% to 15% in the long term.

The analysts emphasised how, in a zero or weak growth market context, with tame pricing policies and the expansion phase of directly-owned stores all but finished, brand positioning is the crucial factor, the one on which luxury goods companies are currently focusing all of their attention.

The Goldman Sachs report cited the highly significant example of Gucci's repositioning: under the aegis of Creative Director Alessandro Michele, the Italian fashion label managed to shift from a positioning centred around its heritage to that of a creative, directional brand.

Growing 7% in the second quarter 2016, Gucci has indeed posted an organic growth rate higher than the market's. For the third quarter, Goldman Sachs is confidently targeting a 6% rate of increase.

The recovery by the Kering group's leading label has led the analysts to hike their opinion on the group's stock, from the previous neutral recommendation to one advising purchase. They have also revised upward the group's share price target, from €134.2 to €213 (+58.7%).