Inside France's US$22 Billion Luxury Goods Industry


Fflur Roberts | June 26, 2017

Despite avoiding recession, France's luxury market is still facing a number of challenges.

France was the world’s sixth largest economy in US$ terms in 2016 and its luxury goods market currently stands at number four in the world reaching just over US$22 billion behind the US, China and Japan. Although it avoided recession in the 2011-2016 period, its economic performance was anaemic and its luxury market is facing a number of headwinds.

Security Issues Push Down Market Performance

From November 2015 France was plagued by terrorist attacks, with incidents in Paris, Nice and other parts of the country shaking consumer confidence and deterring international visitor. The social context was also tense, due to ongoing strikes against the new labour law and other industrial action taking place. Domestic spending remained timid, but maintained sales in some key categories, such as designer apparel and footwear (ready-to-wear) and fine wines/champagne and spirits, and consequently held up overall value sales.

France remains a luxury shopping destination

Luxury shopping continues to be a major driver for many wealthy tourists worldwide, with numerous destinations considered a “luxury shopping paradise”. France, with its capitals venerable position as one of the world’s leading fashion districts - is clearly no exception the rule. France currently stands at no 2 in the world in terms of actual international spending on luxury goods. With an international luxury spending value share of 24% in 2016 France also ranks as one of the highest in the world in terms of weight thanks to international shopping

This number is even more impressive if we look our latest data for inbound tourists. Indeed France recorded poor tourism flows in the last year thanks to global economic slowdown, fluctuating exchange rates, political instability and the heightened fear of terrorist attacks. In turn this has had a negative impact on growth rates in luxury shopping with spending from tourists down by -4% on 2015.

Despite this slight slowdown in both tourism and tourist spend the market and luxury brands themselves remain optimistic: let’s not forget that according to our latest travel data France welcomed nearly 85 million tourists in last year – this is more than any other country in the whole world. Of this 85 million almost a third of these trips were to Paris with luxury shopping and gastronomy being at the top of their to-do list. China already makes up at least 2% of trips and falls into France’s the top 10

Moving forward France will remain a popular destination for wealthy tourist. The outlook is particularly positive for the Chinese tourist with the number of trips by Chinese tourists predicted to reach over 2.6 million by 2020. Whilst this will undoubtedly have a positive impact on luxury spending - we also expect to see luxury hotels reaping some of the benefits with growth in sales remaining stable in the 5 years.

France lags behind neighbouring countries in digital sales

Despite its enormous growth potential for digital, France somewhat lags behind its regional counterparts in this area. To put this in regional context the penetration of luxury goods sold through digital currently stands at about 8% versus 15% for the UK. Much of this is owing the ingrained aspirational or traditional nature of shopping for luxury in store but also France falls far behind its neighbouring countries when it comes to logistics meaning that online shopping is ultimately very inconvenient.

Whilst online sales of luxury goods benefited from the successful activity of pure online players such as Net-a-Porter a number of luxury brands remain absent in this area believing that the real experience of shopping should take place in store and is a key advantage to attract wealthy buyers.

But whilst there may be some challenges to overcome, this disparity opens up many opportunities to benefit from future investment in digital technology

France’s Aging Population Poses Challenges for the Luxury Industry

France’s ageing demographic profile is reflected in the distribution of gross income in the country: As a share of persons with an annual gross income over US$150,000 (ie the top income band), the age group 65+ is predominant. This pattern is expected to accentuate over the long term (due to the country’s ageing population), which will continue to support demand for luxury products bur also creates challenges for the market.

In terms of its middleclass household, by 2030, France will boast 9.3 million middle class households (up from 8.3 million in 2014) and a median income of US$60,051 per household. Whilst absolute growth has increased there is expected to be a slight proportional contraction. Indeed, ever since the global financial crisis of 2008-2009, France’s middle class has come under pressure from climbing unemployment, sluggish economic growth, the rising cost of living and cutbacks to services. All this has contributed to changing the French middle-class spending behaviour that luxury businesses ought to note. To address changes in middle class consumer behaviour successfully, luxury goods companies will need to innovate, including a focus on value and an increased interest in health and wellness

In terms of its wealthiest consumers overall, according to our latest research the total number of HNWIs in Western Europe stands 10 million and France currently makes up almost a third of this population and it is predicted that this number will increase by 221% outpacing regional growth and adding over four million individuals to the high-end luxury mix by 2030. To put this in global context, France is now ranked fourth in the world in its number of HNWI ahead of Germany and China.

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