The professionals at Aimlon CPA P.C. are aware of the specialized needs of the luxury industry and can support your organization.
Luxury
The luxury industry is an estimated $350 billion market that encompasses organizations that design, manufacture, and distribute unique and eminent goods or provide world class services that give the buyer comfort, pleasure, and a feeling of higher status. The luxury industry contrasts with the consumer goods industry where organizations produce and distribute necessities, staples such as bread or potatoes in the U.S., tortillas in Mexico, and rice in Japan.
Luxury products or services are more sensitive to changes in the economic environment
When consumers’ disposable income shrinks, they tend to buy fewer luxury products but keep purchasing necessities. For instance, the 2020 COVID-19 pandemic and the subsequent economic impacts have shaken some of the foundational aspects of the luxury industry with luxury goods witnessing a negative demand across all geographical markets. Amid the pandemic, the luxury global market experienced a sharp decline in luxury products demand from $316 billion in 2019 to $257 billion in 2020. The U.S. luxury goods market is estimated at $94 billion in 2020. And Italy accounts for more than 40% of the global luxury-goods production.
Because luxury products and services are generally uniquely designed, are of an excellent quality and high durability, they come with of the highest price point and are affordable to only a small group of people around the global. However, the number of wealthy people has been increasing steadily. For instance, there were an estimated 614 billionaires in the U.S. in 2020, up from 298 in 2000. And in 2020 the combined wealth of 2,153 billionaires around the globe exceeds the wealth of 60% of the human population representing 4.6 billion people.
The pre-owned luxury products sector has experienced rapid growth between 2017 and 2019 because of an increased focus of millennial (those born 1980-95) and Gen Z consumers on sustainability and a growing trend for social shopping and online communities. Pre-owned luxury products shopping is projected to grow from 21% in 2021 to 27% in 2023 and a projected market size of $60 billion by 2025.
Global luxury goods market segments include watches & jewelry, perfumes & cosmetics, clothing, bags & purses, footwear & eyewear:
- The clothing segment is the largest due to an increasing demand for fashionable clothing items from consumers and rapidly changing fashion trends
- The watches and jewelry segment holds a significant share due to an increasing demand for smart luxury watches and jewelry items
- The bags & purses segment is expected to grow rapidly because of an increasing demand for leather-based products, fashionable and matching handbags.
- The perfumes & cosmetics segment is expected to grow due to emerging male grooming trends, a rising awareness regarding health, hygiene, and demand for products that enhance an individual’s overall appearance such as skincare, face care, hair care, makeup.
- The footwear & eyewear segment is expected to grow thanks to the introduction of new product designs in the market.
In 2019, Europe is home for 7 of the top 10 luxury goods companies in the world including France (3 companies), Switzerland (2 companies), Italy (1 company) and the United Kingdom (1 company). Two of the top 10 luxury goods companies are U.S.-based, and 1 calls China home. Ranked by revenue, the top two luxury goods companies in the world are French owned companies.
SOME OF THE KEY SUCCESS FACTORS
In an industry where the top 10 companies hold a major market share, some of the key success factors that we see include:
- New product launches,
- Product design innovation,
- Innovative and convenient-to-use packaging designs,
- Compact containers that can be easily carried on-the-go,
- E-commerce platform for shopping luxury product items, communicating with customers, and forging a sense of community around your brand,
- Balancing the number of physical stores and online store. Physical stores offer a unique customer experience that a digital-only store cannot replace,
- Fashionable and innovative goods that combine technology elements in jewelry product items, handbags, or goggles,
- Customized product offerings to gain certain category of consumers’ attention and to cater to specific requirements of every individual,
- Implementing sustainability policies and practices throughout the supply chain. This could be achieved by using environmentally friendly raw materials, using utilities responsibly and investing in green technologies. For instance, plant-based leather may be used to produce jackets, footwear, and handbags instead of leather goods derived from animals,
- Partner with businesses that distribute pre-owned luxury products or rent luxury goods,
- Vertical integration,
- Customer experience,
- Cyber security strategy,
- Adoption of digital technologies such as artificial intelligence (AI), augmented reality (AR) applications to help analyze consumer data.
Services
Some of the services that companies in the luxury industry request from us are :
Preparation of Financial Statements
Research and Development (R&D) Tax Credit
Please contact us today to find out how we may best serve your organization’s specific needs.