A central structural growth theme underpinning growing luxury consumer demand is industrialisation. Two-thirds of the world’s population in Asia and Africa are now going through the process of industrialisation. Over the coming decades, this process of consumers entering the middle- and upper-income classes in emerging markets and growing income inequality will accelerate demand for luxuries.
Long-term the number of affluent people (greater than $250k investable wealth) in the world will almost double from 52 million this year to 94 million by 2030. Shorter term, global consultancy Bain-AltaGamma predicts that after pandemic setbacks the global luxury industry will grow by more than 50% to reach between $330 billion and $370 billion in value by 2025, with Asia accounting for over 63% that.
How the global luxury market grows is also evolving as new generations come to the fore in terms of purchasing power. Digitally enabled purchases are expected to double by 2025 to account for 45% of purchasing decisions, compared to 22% currently.
Discretionary consumer tastes and habits also change as generations and cohorts mature in response to different economic and social influences. Discretionary spending on pets which the affluent increasingly humanize or upon their children’s private education intended to give them a head-start in life are good examples of more modern luxuries commanding a growing share of total consumer spending. Sectors like these now compliment the more traditional luxury spending on jewelry, fast cars and upmarket accessories.
Before the pandemic, experiential services spending was outpacing spending on material luxuries. We expect this to return too and play an important long-term role in the Fund.
The one constant which has remained since ancient times is that aspirations primarily drive consumer decisions, providing a fertile ground for healthy returns on capital as well as growth for companies able to help households ‘stand out’ from the crowd. This is the long-term focus of the Fund.