Luxury goods registered moderate growth in 2016 with performance being slightly better than in 2014 and 2015, when the negative effects of the strong Swiss franc were felt most. However, there were many factors which curtailed a more robust performance in 2016. Swiss consumers became highly price-sensitive and cautious in their spending, and many continued to cross the border into neighbouring countries to shop in order to take advantage of the weak euro.
The difficult conditions in the Swiss and global economies further exacerbated the situation. Tourists also reduced their per capita spending. The volatile political situation stopped many tourists visiting Europe, and their numbers fell noticeably in Switzerland. All categories within luxury goods saw an increase in value sales, but the majority registered a weaker performance than the CAGR seen in the review period.
Shifts in the luxury market create further headwinds
Switzerland features the highest per capita gross income and spending levels amongst OECD countries. Nevertheless, the subdued performance of the Swiss economy is weighing on growth of the country’s consumer market. Switzerland’s high disposable income levels and narrow income gap open opportunities across luxury segments, although, in the long term, the country’s ageing population, changing demographics and evolving lifestyles will lead to shifts in this sophisticated consumer market.
Swiss in the age group 50-54 commanded the highest average gross income levels in 2015. However, as a share of individuals with an annual gross income over US$150,000 (ie the top income band), the age group 65+ was prevalent, a pattern that is expected to accentuate in the long run, due to the ageing process of the Swiss population. This will continue to support demand for products in categories including health goods and medical services, miscellaneous goods and services (mainly financial and insurance services, and jewellery) and leisure and recreation, targeted at the premium segment.
Challenges in an increasingly competitive landscape
The negative effects of the strong Swiss franc are expected to continue in the forecast period, although these effects are likely to be somewhat subdued. Consumers are expected to be cautious in their spending, and shopping tourism, with Swiss consumers crossing over into neighbouring countries to shop, is expected to persist. The price-sensitivity and cautious spending patterns of consumers are anticipated to continue. The decline in the number of wealthy tourists is likely to continue due to the volatile political situation in Europe, as well as the difficult economic situation in Switzerland and in global economies. The slowdown of the Chinese economy and the drop in oil prices will be some of the factors that will affect the per capita spending of wealthy Chinese, Russian and Middle Eastern tourists. Many tourists will choose to shop in neighbouring countries, and not in Switzerland.
Trade sources believe that Swiss retailers have now brought their prices on a par with their counterparts in neighbouring countries, and are therefore competitive. This, however, remains to be seen and tested in the forecast period, as no one is able to predict the situation with certainty. Unit prices are expected to increase only moderately in the forecast period, as both retailers and manufacturers will attempt to maintain competitive prices. The unit prices of accessible and affordable luxury brands will continue to be challenged by the competitive market environment, whereas prestigious and absolute luxury brands will continue to see their prices rise, as high prices add to their exclusive image. The customer base for absolute luxury brands is the world’s super-rich, who do not pay attention to currency exchange fluctuations, nor look for bargains in luxury goods.
Online retailing wins distribution share
Although the bulk of distribution remained in the hands of specialist retailers, internet retailing registered significant growth in 2016. This development was supported by the multi-channel distribution strategies of leading brand owners, as well as retailers which established online shops via transactional websites. Their strong presence helped to increase the trust in and credibility of online shopping. There was also a high presence of leading online retailers, such as Zalando.ch. Many established pick-up points, as well as different methods of payment, increased convenience. For those consumers that are reluctant to use their credit card details online, the choice was offered to order online and receive goods with a bill that can be paid either by cheque or bank transfer.
The increasing number of Swiss households with internet access, as well as the high penetration of devices, is positively impacting online sales. The fact that online payment systems have become more sophisticated and safer only further contributes to its further development.
Mobile, in particular, is reshaping the Swiss industry as companies leverage the portability and personal nature of these devices to reach and communicate with consumers. Swiss consumers on the whole are comfortable with such devices and, as a result, shifting digital purchases there.
Outlook remains moderate
In the forecast period luxury goods is set to register moderate value growth at constant 2016 prices in Switzerland. In most categories the forecast growth is expected to be slightly lower or in line with the value growth seen in the review period at constant 2016 prices. Trade sources believe that unit prices in Switzerland have dropped sufficiently, and have reached a level which is able to compete with neighbouring countries. However, no one is able to say this with certainty, and the coming years will put this to the test. Nevertheless, the difficult retail environment seen in the review period is expected to improve, with the effects of the strong Swiss franc becoming less of an obstruction to growth.