By Nathalie Remy and Thomas Tochtermann

Europe is the world’s biggest luxury goods market, responsible for 36 percent of total luxury sales. Europe was also the most resilient mature market during the financial crisis between 2007 and 2011, with a compound annual growth of 2 percent (9 percent over 2009–11); and it was the only mature market with sales in 2011 higher than in 2010. The solid bottom line hides a certain troubling dynamic, however: most of this growth has come from a revived influx of tourists from foreign markets returning to pre-crisis traveling and spending habits. The annual number of Chinese, Japanese and Russians visiting European tourist establishments grew by 19 percent between 2009 and 2010 (35 percent for the Chinese). Chinese consumers doubled their transaction volume on tax-free articles in France in the first quarter of 2011 and their average spending per basket has doubled since 2005.

Building on its 2010 study, “What’s Next: The Rebirth of Luxury,” McKinsey conducted a new survey in 2011 of approximately 4,500 luxury consumers across France, Germany, the UK and Italy. The survey sought to reveal the attitudes and behaviors of these European consumers, as part of a global McKinsey effort to better understand evolving luxury consumers. (A similar survey was conducted for both China and Japan.) This survey confirms trends observed in the 2010 survey, and reveals two main challenges.

European luxury consumers have lost enthusiasm for luxury consumption. They have become more price sensitive  and the ways they are seeking and enjoying luxury are markedly shifting. Comparing the 2011 European findings with the booming Chinese luxury market, these trends appear even more striking.

Moreover, our 2011 study shows that European luxury consumers exhibit multifaceted differences, present by income bracket and by country. The survey grouped European consumers of luxury goods into three basic annual income tiers: over €100,000 (top-tier), €50,000-100,000 (mid-tier), and below €50,000 (low-tier). The survey identified significant variation in the attitudes of consumers towards luxury buying by income bracket, not only in terms of spending levels, as would be obvious, but also in expectations and preferences, notably regarding price policy and distribution channels. In addition, market segmentation reveals that there are significant and pronounced patterns in luxury consumption at a national level.

As the market gets more complex, luxury players will need a deeper and more granular understanding of target consumers to better meet their expectations and needs. In the path to developing their strategies, luxury players will need to discover how to deepen their relationships with consumers in the top income bracket, how to target the middle bracket to successfully transform it into a growth engine, and how to tailor their products to meet differences in luxury consumption by income bracket and by country.

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