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Luxury goods sales to return to growth in 2017, Bain says

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Luxury goods sales to return to growth in 2017, Bain says

The luxury goods market is set to return to growth in 2017, driven by rebounding consumer sentiment in Europe and China, management consulting firm Bain & Co. said in a May 29 report.

The market, which encompasses designer clothing and accessories by fashion houses such as LVMH Moët Hennessy Louis Vuitton SE and Kering SA, is likely to grow between 2% and 4% to between €254 billion and €259 billion from an estimated €249 billion in 2016 on constant exchange rates, according to a study by the Boston-based firm. In 2016, the market likely shrank 0.8% from 2015.

Europe is likely to enjoy the biggest growth in 2017 of 7% to 9% thanks to recovery from the impact of terrorist attacks, while sales in mainland China should expand between 6% and 8% owing to local consumer appetite, Bain said.

The market grew 4% in the first quarter of 2017. "This year looks promising so far," said Bain partner Claudia D'Arpizio, the lead author of the study. "After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. Factors such as the continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year."

The study highlighted recovery of tourist inflows in Europe and confidence among local consumers, adding that Spain is considered as a safe destination and the U.K. is benefiting from a weaker currency compared to 2016. It also said consumption is rebounding in mainland China, where shoppers prefer to buy luxury goods locally.

These trends combined are likely to offset the weaknesses in the Americas and the rest of Asia, the study said. The U.S. luxury market is struggling with a strong dollar, political uncertainty and sluggish department stores sales, while Taiwan and Southeast Asia are seeing declining tourist numbers.

For 2017, Bain expects growth of between minus 2% and 0% for the Americas, and a contraction of between 2% and 4% for the rest of Asia.

Going forward, Bain expects more growth to come from online sales and off-price stores, and believes lower price differentials in China will drive local consumption and also attract Chinese tourists to Europe.

The firm also expects the gap between winners and losers to widen further, and suggests that players' success hinges on the ability to cater to the millennials and post-millennials, which together should represent 45% of the global luxury goods market by 2025.

Bain forecasts the luxury goods market will expand to €290 billion in sales by 2020, up 16% from 2016.