The luxury goods industry is becoming the empire on which the sun never sets.
This story first appeared in the November 11, 2013 issue of WWD. Subscribe Today.
With domestic demand subject to fickle economic forces in mature markets, designers are increasingly attentive to newer regions, not only the BRIC nations—Brazil, Russia, India, and China—but broad swathes of the Far East and Australia, countries whose ranks of aspirational middle classes are swelling and whose use of wireless technology is growing.
Over the next three years, China is set to overtake the U.S. as the world’s largest market for luxury goods, according to Bain & Co., while luxury-goods sales in Asia-Pacific are set to grow by 170 percent over the next five years, according to Euromonitor International.
Euromonitor, which undertakes strategy research for consumer markets, also predicts that by 2018, Asia-Pacific will overtake Western Europe as the largest region globally in terms of value of luxury-goods sales.
Overall, the global luxury-goods market, which was worth more than $258 billion in 2012, will expand at a rate of 7 to 9 percent a year until the middle of the next decade, according to a report by the Future Laboratory, citing Bain & Co.
“Asia [India and China], and the Southeast Asia bloc is where the most potential is. There are 300 million new middle-class consumers there, and we cannot underestimate how much they know about the [luxury] brands,” says Anson Bailey, principal of business development at KPMG China. “Ten years ago in China, brand recognition was relatively low. Today it is amazing. They have an insatiable appetite for knowledge about the brands and are using their tablets and smartphones to study the brands’ heritage, history, craftsmanship and DNA. They spend a lot more time online than their Western counterparts.”
Bailey, speaking on the sidelines of the Walpole Luxury eBusiness forum in London in October, brushed aside concerns about an economic slowdown in China: “People say it’s in for a hard landing. But just look at some of the western markets—they would die for China’s growth.” China is the world’s second-biggest economy after the U.S., and still the fastest-growing one in the G-20 group of major world economies. The International Monetary Fund has projected that in 2013, China’s GDP will grow 7.6 percent, compared with 1.6 percent in the U.S. and 1.4 percent in the U.K. The euro zone economy is expected to contract by 0.4 percent this year, and begin notching modest growth next year.
According to Fflur Roberts, global head of luxury-goods research at Euromonitor, luxury spending in China is “rising steeply despite a government clampdown on extravagant consumption.”
According to a report by the Future Laboratory, by 2015, China’s consumers will account for one-third of the global market for luxury goods, with a value estimated at about $175 billion. The report added that China had more than 700,000 high-net-worth individuals at the end of 2012, a figure expected to rise by 20 percent this year.
It’s no great revelation that Chinese tourists are fueling luxury-goods growth in Europe, where domestic demand has been flagging. In the U.K. alone, the Chinese are the fastest-growing group of luxury shoppers, and their numbers are set to grow.
In October, the British government, bowing to pressure from retailers large and small, said that its notoriously complicated visa application process for Chinese tourists would be simplified. The U.S. government is also looking to expedite its own visa process in relation to Chinese tourists—a process seen as even more restrictive than the U.K.’s It’s not just Europe where the Chinese have been fueling demand for luxury goods: They have also begun to push into Australia, boosting that country’s luxury-goods growth.
According to Martin Bartle, an e-commerce expert and investor and shareholder in the new British high-end accessories brand Dom Reilly, Australia now attracts more than half a million Chinese tourists each year.
During a recent presentation in London, he cited Tourism Australia, saying that the inbound Chinese market has the potential to be worth up to 9 billion Australian dollars, or $8.58 billion, by the end of the decade.
That said, locals—including the continent’s 30 billionaires—account for 60 to 70 percent of the spend in the 1.07 billion Australian dollar ($1.02 billion) luxury market, with 30 to 40 percent coming from tourists.
E-commerce entrepreneur Bec Astley Clarke, whose high-end jewelry site AstleyClarke.com carries brands including Solange, Pippa Small, Kiki McDonough and Carolina Bucci, says Australia is one of her fastest-growing markets. “It’s such a small market, but we are watching sales grow—it’s been a surprise.”
Southeast Asia is also showing great promise: Luca Solca, managing director and sector head, global luxury goods at Exane BNP Paribas, says he believes the region is worth about 50 percent of China, and where he expects to see the most important developments going forward. Solca names Malaysia, Indonesia, Vietnam, the Philippines and Thailand among the hot countries for future consumption.
He’s not the only one targeting the region as a growth engine: Last fall, Ledbury Research in London singled out Thailand as a “hot spot,” or emerging market for luxury goods. It has one of the highest GDPs in the region, low unemployment and a crucial third factor for luxury goods: a solid, expanding middle class.
“What Thailand has is domestic demand from a big middle class, and there is not a large income inequality in the country,” says Nicola Ko, luxury analyst at Ledbury, who helped to research and write the report. Louis Vuitton, Burberry, Gucci, Chanel and Bulgari all have multiple stores in Bangkok.
Thai travelers are also big spenders: According to the latest statistics from Global Blue, which operates the world’s biggest tax-free shopping network, Thai visitors to the U.K. had the highest average spend of among the top emerging-market countries.
They spent an average of 755 pounds, or $1,206, per transaction in the nine months to August, a 58 percent increase on the same period last year. Second to the Thai tourists were the Indonesians, who spent an average 665 pounds, or $1,062, per transaction, a 35 percent increase compared with last year.
On the other side of the planet, Brazil is also showing increasing potential. Ledbury revealed in a recent report that with the World Cup and Olympics on the horizon, an increasing number of luxury brands are looking at opportunities within the market.
Louis Vuitton currently has five points of sale already in cities such as São Paulo, Rio de Janeiro and Brasilia, while Cartier, Tiffany, Bulgari, Burberry, Gucci, Ralph Lauren, Armani and Chanel have at least one store each.
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According to a report by Walpole, the industry association of high-end British brands, only 13 percent of British luxury brands have operations in Brazil, but due to the World Cup next summer and the 2016 Olympics, 52 percent of brands surveyed have plans to enter that market. Cosmetics is one segment of the Brazilian luxury market that’s booming. The Future Laboratory said in a recent report that Brazilians are set to spend $59 billion on beauty products by 2016, and already account for 10 percent of the global beauty-products market.
MAC Cosmetics is the most popular makeup brand for Brazilians’ online searches, while “luxury beauty brands are flocking to Brazil to satisfy an apparently insatiable demand. In 2012, LVMH’s Sephora opened its first stores in São Paulo and Shiseido’s BareMinerals brand also launched in Brazil for the first time,” the report said.