Bain & Company and Altagamma see lackluster luxury sales but call beauty market “fast-growing”

28 Jun 2024 --- Bain & Company and the Italian luxury goods manufacturers’ industry association, Altagamma, tell Personal Care Insights the first quarter of the year saw a slowdown in the luxury market across most regions amid macroeconomic pressures that resulted in high inflation.

However, they say the beauty sector continues to see “strong momentum” due to the “small-luxuries effect,” a term used to describe aspirational consumers shifting their spending toward more accessible luxury categories as a means of self-treatment.

Former Estee Lauder Chairman Leonard Lauder described a similar phenomenon in 2001 during the recession. Lauder said cosmetic purchases — especially lipsticks — tend to be inversely related to the economy, with women replacing more expensive purchases with smaller luxuries such as cosmetics. 

Federica Levato, senior partner and EMEA leader of Fashion & Luxury at Bain & Company tells us, “Beauty brands should continue investing to surf the momentum by embracing trends and capitalizing on a fast-growing market.”

“Among the multiple ways to achieve this, brands should aim to deliver high-performing and inspirational products that value identity, inclusion and empowerment, while also meeting consumers’ desire for continuous innovation and functional benefits.”

Luxury beauty predictions
Last year, the global luxury market showcased “remarkable stability” during geopolitical and economic turbulence, exceeding a record €1.5 trillion (US$1.6 trillion). The Luxury Goods Worldwide Market Study attributed the growth to a resurgence of luxury travel and a robust US holiday season in the fourth quarter.

Bain and Altagamma say brands can capitalize on the boost in the  luxury beauty industry.“The market slowdown in Q1 signals a new phase of momentary normalization for the luxury sector after a period of strong acceleration, marked by significant polarization in brand performance within and across regions,” says Levato.

“Consumption has been impacted by both macroeconomic pressures and sector weaknesses. These pressures are reflected in restrained GDP growth and rising geopolitical uncertainties that hinder consumer confidence and impact disposable incomes.”

Bain and Altagamma emphasize a continuing trend favoring experiential offerings over tangible goods in the luxury sector.

“Additionally, there has been a weakening of the overall value proposition that luxury brands are able to deliver toward some consumer segments, following the continued elevation that occurred last year,” Levato adds.

The personal luxury goods market saw a “slight decline” in the first quarter of this year. The companies note that luxury brands’ ability to address rising prices while maintaining a “robust” price-value equation in the eyes of consumers is critical to maintaining stable growth across subsectors.

“The beauty sector may enter a phase of potential ‘normalization’ as the luxury market recovers from these challenging times and macroeconomic pressures.”

Asian market highlights
The research also points out that Japan flourished thanks to a boom in tourism with “significant variability” in brands’ popping up in the region but warns that it could level off.

Tourism inflows in the first quarter of the year saw Europe and Japan demonstrate “notable resilience.” The report says Japan continues to attract a growing number of nationalities beyond the historical predominance of nearby Chinese travelers.

Bain’s believes the resurgence is largely due to the backlog of travel from the previous year, postponed because of COVID-19 restrictions. In Japan, tourist inflows have surpassed pre-pandemic levels, bolstered by a favorable Yen arbitrage — reaching its lowest level against the US dollar in two decades. This has resulted in emerging luxury locations across the nation.Gen Zers are steering away from luxury goods due to low finances.

However, the Luxury Goods Worldwide Market Study explains that China’s market is “under pressure” due to the revival of outbound tourism and weakening local demand caused by rising economic uncertainties.

Fiscal pressure is “undermining” middle-class consumer confidence, leading to “luxury shame,” which Bain describes as similar to what occurred in the Americas during the 2008-09 financial crisis.

The US also continues to face macroeconomic pressures despite gradual GDP and consumer confidence improvement.

Gen Z decline
The report sees the youngest generation currently entering the workforce facing rising unemployment levels and weakening future outlooks, forcing them to delay spending on luxury goods.

Meanwhile, Gen X and Baby Boomers continue to “enjoy accrued wealth,” growing their spending as they capture luxury brands’ attention, which complements the ongoing growth of the top consumer tier.

Bain and Altagamma assert that many brands are taking a dichotomous approach, focusing on “top clients,” emphasizing large-scale one-to-many events, and investing in expanding their reach by engaging in conversations in new territories. 

Personal Care Insights also covers recent data from Adobe Analytics, reiterating a shift in spending habits with consumers seeking high-end cosmetics while being budget-conscious in other areas.

By Sabine Waldeck