Luxury companies experience ‘worst year since recession’

Last year was the most challenging for the luxury goods industry since the recession of 2009, with growth slowing by 8% during the year.

Luxury goods, which includes spirit brands such as Johnnie Walker, still see China as a core long-term market

The luxury industry saw just 2.4% growth during 2013, a sharp drop from the 10.4% growth witnessed in 2012.

But while the change in Chinese government regulations and subsequently more discerning pool of consumers are largely to blame for the slowdown, China is still earmarked as a key market for luxury growth in the near future.

According to financial advisory firm EY’s Luxury and Cosmetics Financial Factbook 2014, China is expected to add up to 40% to luxury growth by 2020.

The prediction mirrors that of International Wine and Spirits Research (IWSR) earlier this month, which forecasted China, along with India, to be the biggest growth markets for beers, wines and spirits by 2019.

However, the EY publication also warned producers of luxury goods to continue work on their brand image and management, merchandising, design and manufacture in order to compete in such a challenging market.

Paul Wood, global luxury leader for EY, said: “The slowdown in the growth rate was not anticipated by the industry and as a result a number of luxury companies were caught by surprise.”

He added that while growth rate declined, profitability has been maintained due to “volume growth, a high retail mix with greater margins and an increased focus on efficiency”.

“Given the rising pressure and increasing competition of mass prestige in this particular sector, companies cannot afford to compromise on efficiency if they want to secure increased profitability,” Wood said.

The EY report also advised luxury producers to accelerate their digital presence as luxury buyers become increasingly younger and online savvy.

It claims online business, while representing just 4.5% of all luxury sales, is growing at a rate of 30% year-on-year.