McKinsey: Fine jewellery to see growth of 8-12% in next 5 years
US multinational consulting firm McKinsey & Company, founded in 1926 in Chicago but now based in New York, has published one of its regular market reports, providing an overview of the fine jewellery and premium and ultra-luxury watches sectors. The report sketches these markets’ expected scenarios for the next five years.
McKinsey has charted the future evolution of two sizeable sectors, since fine jewellery and premium and ultra-luxury watches account for a major share of the luxury market worldwide, with a combined annual revenue of more than $330 billion. The pandemic has caused these markets to slump, their revenues falling by 10-15% and 25-30% respectively.
However, McKinsey expects both segments to recover in the coming years. Specifically, growth is expected to be driven by younger consumers and domestic markets, due to the continued restrictions on international travel and the increase in the number of domestic duty-free zones in China. Asia currently accounts for 45% of global jewellery sales and for 50% of global watches sales, and both are forecast to expand further in the next five years, from 10% to 14% for fine jewellery and up to 4% per year for watches, a growth spearheaded by China.
In the fine jewellery segment, McKinsey is predicting a future characterised by a greater presence of established brands, by the growth of digital channels and a drive for sustainability. Between 2019 and 2025, high-end branded jewellery is set to grow at a compound annual growth rate of 8-12%, approximately three times faster than the market. There will be three major transformations taking place within the industry.
First of all, digitalisation: global online sales are likely to rise at a rate comprised between 13% and 21%. However, the report underlined that the shift to digital channels must be carefully considered by industry players, in order not to underestimate the importance of humanizing digital experiences. Online consumers expect in fact the same level of customer service and attention to detail they experience in stores. By 2025, approximately 80% of purchases will still be made in physical stores, so that a seamless experience across channels is a must.
Then there is sustainability. By 2025, the report estimated that 20 to 30% of global jewellery sales will be influenced by sustainability-oriented consumers. Market players must therefore embrace sustainability in order to earn the trust of young consumers and carve out a leadership position.
Finally, new jewellery brands are emerging. Fine jewellery currently accounts for only 20% of the market's total revenue. But the presence of luxury brands is on the rise. Branded jewellery is forecast to reach a 25-30% share of the market by 2025, equivalent to between $80 billion and $100 billion.
With regards to the premium and ultra-luxury watches segment, McKinsey expects a relatively slower growth rate, ranging from 1% to 3% annually between 2019 and 2025. There will be three major changes in this market segment.
Firstly, the retail channel will undergo a complete makeover. For decades, offline retailing has been the main source of revenue for the watch industry, with multibrand retailers handling the relationship with customers. Nowadays, consumers ask for direct interaction with brands, and expect better purchasing opportunities online. For this reason, watch-makers will expand the scope of their retail presence, and take control of the customer experience by adopting a dynamic omni-channel approach. This is a major challenge for both brands and retailers, since $2.4 billion in annual revenue are expected to shift from multibrand retailers to brands by 2025.
Meanwhile, the mid-range market segment is expected to contract. Squeezed by the intense competition of digital-native players and fashion brands, and the rapidly growing smartwatch category, the mid-range market for traditional watches is under increasing pressure. Many of this segment’s consumers are currently shifting towards luxury products. Unless traditional mid-range brands react, McKinsey predicts that their aggregate revenue might decrease by $2.5 billion by 2025.
Finally, a new era is dawning for the second-hand watches sector. According to McKinsey, the sector is set to become the fastest-growing segment in the industry, and its sales are forecast to be worth between $29 billion and $32 billion by 2025. Brands will need to work hard to capitalise on this evolution, while specialised e-tailers will need to refine their business models in an increasingly competitive environment.
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