The global personal luxury goods market expected to grow by 2-4 per cent in 2017, reaching between €254-259 billion, according to a just released study by Bain & Co. Growth will primarily be driven by healthier local consumption in China and increased tourism and consumer confidence in Europe, the leading advisor to the global luxury goods industry said.

These findings form part of the “Bain Luxury Study 2017 Spring Update” published in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.

“This year looks promising so far,” said Claudia D’Arpizio, a Bain partner and 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 also presents the growth trends in key international markets. It notes that the U.S. luxury market continues to underperform, and with a strong dollar, ongoing political uncertainty and struggling department stores the outlook for 2017 remains uneven. The North American region, including Latin America and Canada, is expected to grow between -2 to 0 percent (at constant exchange rates).

The Bain report sees Europe recovering from decreased tourist flows in 2016 and local consumers regaining confidence among. Spain and the Ukare identified as two bright spots. Bain forecasts growth of 7-9 percent (at constant exchange rates) for the region.

Mainland China is also rebounding, the report states, with local consumers now demonstrating a strong preference for purchasing luxury goods at home. This is expected to drive growth of 6-8 percent (at constant exchange rates). However, Chinese tourists will still account for a sizable portion of luxury purchases abroad.

Japan, a more mature market, remains a safe market for luxury brands, while across the rest of Asia, the environment remains difficult. Bain believes the market in that region is set to shrink by -2 to-4 percent (at constant exchange rates). The rest of the world is expected to be flat or see only slight growth of 2 percent (at constant exchange rates), with Middle East remaining stagnant (outside of Dubai).

The report highlights five key themes that luxury goods companies should keep in focus for the rest of the year. These are:

US market: The largest market for personal luxury goods is facing a combination of factors which hamper growth. Brands will require an impeccable strategy and execution focused on developing loyalty and delighting local customers.

China: Lower price differentials in China are encouraging a flourishing local market, while Europe benefits from its standing as an attractive destination for Chinese tourists.

Digital and off-price: The momentum of digital transformation continues to reshape the luxury industry with online sales expected to be the leading channel with the highest growth in the coming years, followed by off-price stores. Physical monobrand stores will be the real playground for luxury brands, although their footprint may be approaching the limit.

Big winners vs. strong losers: The polarization trend, which Bain’s research highlights as a feature of the “New Normal” era, is highly evident in the first months of 2017 as the gap between winners and losers widens further.

The Millennial State of Mind: Success in the next decade requires brands to refocus on their customers to better anticipate and cater to their needs. The younger generation will be key as millennials and Gen Z will represent 45 percent of the global personal luxury goods market by 2025. Still, when analysing behaviours, it is more correct to talk about a “millennial state of mind,” which is increasingly permeating across all generations and is thus more a psychographic phenomenon rather than a purely demographic one.

Looking ahead to 2020, Bain expects mild growth of 3-4 percent per year (at constant exchange rates) as the market size increases to €280-290 bn.

“Brands need to be customer obsessed and millennial minded,” said Bain partner and report co-author Federica Levato. “Buying a luxury good now is not just walking into a store. It has become a journey of engagement through multiple touchpoints well before the point of sale.”

To stay ahead and unlock the potential, Bain advises luxury brands to:

• Develop 1:1 relationships to nurture local customers
• Upgrade personalization of product, service and message
• Develop a holistic distribution approach and re-design the customer journey
• Build story-living through inspirational conversations and experiences
• Master all the touchpoints with the customer along their journey and create an ongoing 360° engagement plan.