As luxury goods companies recovered from the adverse impact of the COVID-19 pandemic, they are now presented with new opportunities arising from the ‘green transition’ and progress toward a circular economic model and responsible business. This along with the continuing digital revolution of the metaverse and Web3 is generating a lot of enthusiasm in the luxury industry and provides unparalleled opportunities for companies to be innovative and disruptive. [Global Powers of Luxury Goods 2022]
Circular economy in the luxury industry
Although the fashion and luxury industry has long been criticized for the environmental impact of its production processes and consumption practices, luxury goods companies continue to embrace the circular economy and sustainable luxury is here to stay.
A further step in this direction is the adoption of a circular economy model that would ensure benefits such as reducing pressure on the environment, improving the security of the supply of raw materials, increasing competitiveness, stimulating innovation, boosting economic growth, and creating new jobs. Increasingly more companies are including sustainability principles in their core strategies, making it a new paradigm of conceiving luxury by following ESG (Environmental, Social, and Governance) criteria. They are using technology to develop environmentally-friendly new materials and find new ways to be more sustainable—in design, production, distribution, and communication.
Leading luxury companies drive revenue growth
The world’s Top 100 luxury goods companies generated revenues of US$305 billion in FY2021, rebounding from US$252 billion in the previous year, and exceeding the US$281 billion in FY2019 (before the impact of the COVID-19 pandemic). The importance of the leading luxury goods companies is clear: the 15 companies with luxury goods sales of more than US$5 billion contributed more than two-thirds of the total Top 100 luxury goods sales. The 45 companies with sales of US$1 billion or less contributed only 6.7%.
The composite performance of the Top 100 companies in FY2021 reflects a rebound (an increase of 21.5% year-on-year) as the impact of the COVID-19 pandemic lessened, with store re-openings and recovery in consumer demand. Seventy-three of the Top 100 companies reported growth in luxury goods sales in FY2021, compared to only 20 companies in FY2020. The FY2021 composite net profit margin for the 78 Top 100 companies reporting net profits more than doubled to 12.2% year-on-year, higher than pre-pandemic levels.
Note that companies reporting at the end of 2021 experienced the benefit of this recovery throughout their financial year, while the results of companies with 2021 financial year end dates early in the year still reflected much of the impact of the pandemic.
In addition to exploring the trends impacting the luxury goods market, the report identifies the 100 largest luxury goods companies based on publicly available data for FY2021 (which we define as financial years ending within the 12 months from 1 January to 31 December 2021) and evaluates their performance across geographies and product sectors. The trends section in this year's report focuses on how the luxury industry is embracing the circular economy and the metaverse.
Key findings from the report:
- In FY2021, the minimum revenue threshold required to enter the Top 100 list of luxury goods companies rose to US$240 million, up from US$182 million in FY2020 and just above the pre-pandemic threshold in FY2019.
- The leading luxury goods companies dominate the ranking: the top 10 companies increased their share of Top 100 luxury goods sales to 56.2%, an increase from 51.4% in the previous year.
- With the growing importance of sustainability issues and conscious consumption, luxury companies have started to understand the relevance of resale as a strategic solution to limit the negative environmental impact of their products. In response to the growth of the secondhand market, where most of the transactions are conducted online, new technology solutions such as the digital passport (a digital tool often based on blockchain technology that verifies the origin of luxury goods such as designer items or works) are being adopted to tackle the risk of counterfeited goods.
- The metaverse gives luxury companies an unprecedented opportunity to re-invent the luxury experience, build credibility, brand engagement, and brand loyalty in the metaverse communities. The digital reality offers new ways for consumers (their traditional audience and a new target audience of tech-savvy young consumers) to interact with their products while being consistent with the true nature and essence of the brand.
- While Italy (with 23 companies) still has the highest number of luxury goods companies, eight French companies contributed the largest share (more than one-third) to the Top 100 luxury goods sales in FY2021.
- The 20 fastest-growing luxury goods companies grew nearly three times faster than the Top 100 as a whole during the period FY2018 to FY2021, and by 45% in FY2021.
- M&A activity took off again in 2021 and 2022, after a hiatus during the pandemic. The appeal of resilient high margins and high awareness luxury brands with strong pricing power was reconfirmed. As companies refocused on their core luxury brands, and sought to enhance profitability and financial stability, there were also some major disposals of non-core businesses, to consumer goods and private equity companies.
