Global luxury goods sales to rebound following pandemic-induced decline, BofA says

Revenue to decline 17% in 2020, compared to about 10% growth in last 3 years, before a 'strong rebound' next year as countries emerge from lockdown

The Hermes logo sits on the exterior of the Hermes luxury goods store on George IV avenue, in Paris, France. Demand for luxury goods will rebound next year following a a severe drop in 2020 due to theShow more

Global sales of luxury goods will record a "strong rebound" next year following a a severe drop in 2020 due to the Covid-19 pandemic, according to Bank of America (BofA).

Revenue is expected to grow 16.6 per cent next year, from a decline of 16.9 per cent in 2020, as governments ease restrictions aimed at curbing the spread of the virus, according to BofA global research estimates.

"The expected revenue decline in 2020 is a result of the impact of Covid-19 on the sector. Given the extra-ordinary and 'one-off' nature of this headwind, we expect a strong rebound in revenue growth in 2021-22," the lender said in an industry report.

"We believe the underlying demand for luxury product remains solid, as shown by the strong bounce back in local consumption as countries come out of lockdown."

The coronavirus crisis–which first appeared in China before spreading to Europe and the US–kept consumers at home and forced retailers to shut their stores, crushing years of growth at high-end brands.

In the second quarter of 2020, demand for luxury goods will drop before recovering in the second half of the year, according to BofA's estimates.

The bank's Luxury Demand Indicator is down 50 per cent in the second quarter, from 19 per cent in the first quarter. In terms of regions, Europe was the worst hit, with demand shrinking due to shutdowns and drop in tourism.

Meanwhile, sector revenue for the companies that BofA covers fell 42 per cent in the second quarter, from a decline of 19 per cent in the first quarter, as a result of large-scale store closures across Europe and the US.

In the third quarter of 2020, BofA expects an improvement in luxury sales, with the decline in revenue narrowing to a 7 per cent drop, it said.

"In Q3, we expect a significant improvement in revenue trends/sales densities as retail stores reopen," the report said. "European and American consumers both appear back to growth in July, while the Chinese consumer overall still remains negative."