The luxury sector faces between a 15% and 20% decline during the first two quarters of 2009, and Bain & Company estimates that the worldwide luxury market will begin stabilizing in the second half of the year, resulting in a net decline of 10% for 2009 overall.

"This year's declines are hitting both the top and bottom lines of luxury goods companies" said Claudia D'Arpizio, a Bain partner and luxury goods expert based in Milan and author of Bain's 'Luxury Goods Worldwide Market' study. "Luxury shoppers are spending less, traveling less and feeling less confident. Luxury goods producers are also feeling the additional squeeze of intense pricing pressure and markdowns from retailers and higher-end department stores."

Among the major luxury product categories, apparel will be hit the hardest, declining by 15%. Jewelry and watches will decline by 12%, while leather goods, shoes, accessories will decline by 10%. Luxury cosmetics and fragrances will be the most resilient categories in 2009 with sales of 22.4 billion Euro for cosmetics and 18.4 billion Euro for fragrances, both comparable to 2008 levels. The differences between categories reflect a trend among luxury shoppers to switch to lower price point items while still remaining loyal to top-of-mind brands. "One of the biggest changes we've seen in consumers is that 'price' and 'luxury' are no longer synonymous," observes D'Arpizio. The study explores further deep changes in consumer behavior and attitude as luxury shoppers adjust to a global recessionary psychology.

There are five major shifts in luxury shopper behavior:

• Reaching lower. Consumers who are newly entering the luxury market, called 'accessible luxury' consumers, are purchasing items at the lower end of brands' product lines
• Seeking intrinsic value. The most affluent, or 'absolute,' luxury shoppers have begun to focus on the intrinsic quality of materials and the durability of luxury items instead of fashion content
• Buying the experience. Experiences are in. Consumers who value the dream offered by luxury brands, called 'aspirational' consumers, are increasingly motivated by service and in-store events as much as by merchandise
• Spending discreetly. Ostentation is out. Consumers are gravitating to more discreet products, preferring understatement in what they buy and how they shop in luxury stores to high visibility items
• Fleeing to value. Many shoppers across all luxury segments now wait for deeper discounts at the end of the season, or seek out discounts at department stores and outlets

• Newly affluent consumers in emerging markets, especially working women,
• Men who are more willing to pamper themselves,
• Younger generations with new tastes and styles
• The number of high net worth individuals. According to Bain's '2009 China Private Wealth Study,' the number of Chinese high net worth individuals (those with more than 10 million RMB, or approximately $1.5 million) is estimated to grow by 6% in 2009.

Learn more about Bain's expertise in luxury
Bain has deep global capabilities and expertise in the luxury market, on a wide range of issues, from strategy and mergers and acquisitions to operations and logistics. To find out more about our work in the luxury market, please contact the practice.

Due to the sharp deterioration of the global economy since October 2008, Bain & Company released an update to the 'Luxury Goods Worldwide Market' study (7th edition) in the early second quarter of 2009. To receive a copy of the study update or to schedule an interview with Claudia D'Arpizio, please contact: Cheryl Krauss at cheryl.krauss@bain.com or 646-562-7863, or Frank Pinto at frank.pinto@bain.com or 917-309-1065.