Luxury Retailers Are Finally Getting a Break

May 30, 2017

Happy days will soon return for the luxury sector.

After a protracted weak spell, spending on luxury goods is set to return to growth this year, helped by a surge in spending by Chinese consumers at home, a tourism comeback in Europe, and high end brands finally figuring out how to appeal to younger shoppers.

Spending on luxury goods has been slammed for some time by geopolitical uncertainty in the wake of several terrorist attacks in major cities most notably Paris, an unsure Chinese economy and a strong U.S. dollar. But the affluent and almost affluent are in the mood to spending according the Worldwide Luxury Market Monitor, a report released on Monday by consulting firm Bain & Co.

"After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. Factors such as the continuous repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year," said Claudia D’Arpizio, a Bain partner and lead author of the study.

The report foresees global personal luxury goods spending will rise 2% to 4% this year to about $290 billion (or 259 billion euros).

The Bain forecast spells good news for everyone from French luxury holding groups LVMH and Kering to U.S. retailers like Tiffany & Co (tif) and Coach (coh).

Since a series of terrorist attacks struck Paris, the luxury world's capital, and other key cities like Brussels and Nice, European luxury sales fell sharply. What's more, spending in China, now the second largest luxury market after the United States, had been seeing a pullback by consumers amid an uncertain economy. But a spending comeback spells good news for brands like Tiffany which have expanded internationally aggressively in recent years.

At the same time, the election of Donald Trump and concerns about ease of travel to the United States, along with a strong dollar have hurt luxury sales in that market, a hit noted by retailers like Macy's (m) and Neiman Marcus among others. U.S. department stores, even the higher end chains, have been grappling with weak sales for several years now, and could use a break right about now.

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