PARIS — Thanks to extravagant offshore spending, Chinese consumers are likely to account for almost a quarter of global luxury goods purchases by as early as 2014, up from 11 percent today.
However, China will be no Eldorado for mediocre brands that aren’t already faring well in Europe, the U.S. and Japan. Only the biggest and strongest players — particularly LVMH Moët Hennessy Louis Vuitton, Compagnie Financière Richemont and Swatch — are most likely to benefit from this powerful clientele.
Those are among the key conclusions of a new report by Merrill Lynch luxury analyst Antoine Colonna, who also considers the potential and perils of two other key emerging markets, Russia and India.
Colonna notes that nationality is key, not country of purchase, as luxury shoppers from emerging markets spend roughly two to three times more on high-end goods while traveling than at home.
For example, mainland China accounts for less than 1 percent of luxury revenues. But by as early as 2009, Chinese customers are poised to overtake Americans as the number-one purchasers of luxury goods in the world.
According to the French tourist board, Chinese traveling in France already spend more than people arriving from the United States or other European countries.
At present, LVMH is considered a leader in China, with a share of about one-third of the upscale accessories and premium spirits markets. Worldwide, Chinese customers account for 13 percent of Vuitton sales, according to company figures obtained by Colonna.
Swatch controls about a third of the watch market, and Richemont dominates jewelry, while Ermenegildo Zegna and Hugo Boss have a strong lead in apparel.
By contrast, brands that are prominent in China now, but not in other key luxury markets, have a low probability of succeeding in the medium turn in the Asian country, according to Colonna.
These would include brands like Pierre Cardin, Givenchy, Dunhill and Rado, which have capitalized on strong male demand in China. However, travelers are increasingly likely to “compare what they have seen at home to what is available abroad,” the report says.
At present, India and Russia each house between three million and five million luxury consumers, reflecting the early stages of the former country’s development and the latter’s vast elite.
In fact, Russia’s market for luxury goods is already larger than New York’s and is forecast to grow by about 6 to 8 percent annually for the next three years, Colonna writes.
India’s luxury goods market is currently valued at a modest 300 million euros, or $374.7 million, and import duties remain high, which explains widespread reluctance to invest substantially, the report says.
Still, initial results from select companies are encouraging, with Zegna encountering higher-than-average demand in India for premium made-to-measure suits, and sales of luxury cars tripling in five years, Colonna writes.
In general, the keys to succeeding in emerging markets include early entry, financial discipline and a strong back-end infrastructure, the report says.
Meanwhile, pitfalls include too little — or excessive — spending on brand awareness; treating emerging markets like factory outlets for inferior styles, and pushing the wrong product category without considering local preferences. To the latter point, ready-to-wear is a popular category in Russia for brands like Vuitton and Hermès, which in other markets tend to stress their accessories businesses.