A decade or more ago, all the luxury world could talk about was the BRICS — Brazil, Russia, India, China and South Africa. But as the various nations hit political and economic road bumps, the industry’s attention focused more and more on only China than on the other members of the quintet.
There are many reasons why the BRICS markets lost some of their allure over the past few years. Internal turmoil and sanctions in Brazil and Russia, economic decline in South Africa, and demonetization and a new goods and services tax in India led to a realignment in business.
But these five countries still account for more than 35 percent of the global luxury market. Analysts agree this will only increase since the BRICS countries already represent nearly half the world’s population and a quarter of the global economy.
While the U.S and Europe — both of which are battling their own political chaos — face a possible recession this year, China will still grow by 6 percent to 6.5 percent, while India will grow by 7.2 percent and 7.5 percent in 2019. Consulting firm Deloitte’s statement that BRICS have become the global ranking standard for the first tier of emerging markets rings true, as luxury retailers determine their future strategies.
The $1.37 trillion global luxury retail market is expected to grow by about 5 percent in 2019, according to the Luxury Goods Worldwide Market Study by consulting firm Bain & Co. The BRICS are heavily skewed in favor of a fast-growing Millennial — and younger — target market than the rest of the world, which is key because of the growing brand awareness among consumers, and a higher willingness — and ability — to spend on luxury.
The bloc is increasingly aware of its power in the luxury and retail worlds — and its member countries want to begin to flex it. As the chair for the annual BRICS Summit rolls over to Brazil this year, it comes with a commitment to jointly explore retail opportunities within and among the various nations.
The leader of the luxury pack is China, which accounts for an estimated 33 percent of world luxury markets. According to a recent report by McKinsey, the number of Chinese millionaires was expected to surpass that of any other nation in 2018, and by 2021 China is expected to have the most affluent households in the world. Chinese luxury shoppers account for more than 500 billion yuan, or $73 billion at current exchange, in annual spending, McKinsey said in a recent report.
Among the changing trends in luxury in China is the fact that more consumers are shopping within the country. Claudia D’Arpizio, a partner at Bain, observed this will change the way luxury purchases are made. “This will be driven by a reduction in price differentials around the world, leading to ‘less bargain hunting,’” she said.
Luxury retailers have been expanding doors and adding stores fast in China, especially in “smaller” cities where luxury is booming. Cities such as Xi’an and Wuhan have been a new focus — and, while smaller than Beijing or Shanghai, they still have populations of almost 13 million and 11 million people, respectively, larger than most Western cities.
Changing aspiration levels have been a key driver, too. “There is the emergence in China of a very strong upper class or upper middle class,” Jean-Paul Agon, chairman and chief executive officer of L’Orèal, said last year. “And the difference is that now Millennials from this middle and middle-upper class are absolutely not hesitant to buy luxury brands.”
There are concerns, as the country’s slowing economy and the ongoing trade war between the U.S. and China make luxury retailers — and analysts — cautious. Both are watching the market closely for any sign of a significant decline in luxury spending.
Even as the world’s leading luxury players continue to focus much of their attention on China, the fact remains that India’s economy will grow faster this year — and the country’s increasing wealth is predicted to lead to a boom in spending on fashion and luxury.
India’s luxury market is expected to grow by five times over the next three years, according to the Association of Chambers of Commerce and Industry of India, which also estimated that the number of millionaires would increase three times over the next five years. That means a substantial increase from the country’s current $30 billion luxury market.
By 2020, around 250 million Indians are expected to be online, which is further forecast to boost consumer spending and interest in branded products. The growth of smartphone penetration in the country means e-commerce may be the track of preference for luxury brands, as well as Western retailers at all price tiers. Walmart and Amazon are already battling it out in India to gain market dominance, with Walmart spending $16 billion to buy fashion e-tailer Flipkart, while Amazon continues to invest heavily in its Indian subsidiary. Meanwhile, the head of India’s Reliance Industries Ltd. has revealed plans to launch his own e-commerce platform linking 1.2 million retailers in western India. His efforts may have been boosted by the Indian government’s recent regulations that bar foreign companies from selling products by firms in which they own equity, and forbids them from pressuring brands to sell only via their e-commerce platforms.
Still, Claudio Marenzi, president of Pitti Immagine, is clear that the big opportunity among the BRICS is in India. “China has already arrived; Brazil is protecting itself too much; Russia has other issues to deal with, and South Africa is a small market compared with the others,” he told WWD. “But India is a big opportunity. In my opinion there are the most possibilities there — for partnerships, for growing brand awareness.”
Although many brands have felt that the Indian market only has a small percentage of luxury spenders, Marenzi believes it is important to recognize where the spending potential is growing. “The percentage of luxury shoppers may be very small, but in absolute numbers there’s a lot,” he said. “With more than a billion people, just 1 percent is 1 million, which is more than an Italian market,” he observed.
Elsewhere among the BRICS nations, Brazil and Russia are also looking more positive, having emerged from recession and political turmoil. They remain the 10th and 11th largest economies in the world, respectively.
With new President Jair Bolsonaro, analysts estimate that, while the promise seen in 2011 may not be restored immediately, Brazil’s long-suffering retail market can be expected to stabilize. The fashion segment, which had revenues of $5.10 billion in 2018 — with apparel accounting for $3.30 billion of that — is expected to have a compound annual growth rate of 3.4 percent from 2018 to 2023, with a market volume of $5.92 billion, according to market research firm Euromonitor International.
Although Russia’s fragmented market remains a challenge for luxury brands, Euromonitor estimates that the high spend per high net worth individual will keep luxury afloat.
A recent report by McKinsey, “Mathematics of the Luxury Market in Russia: Growth Potential and Consumer Behavior,” noted that luxury executives in Russia are optimistic about the outlook in the near future, with 85 percent expecting to see growth over the next three years. Millennials and Gen X consumers are considered key to that growth. Luxury retailers have also not been embracing the full potential of e-commerce, with only 37 percent of those surveyed planning to set up online selling.
South Africa still has to fulfill its promise as the gateway to the luxury market in Africa. But with 71,000 millionaires — about 60 percent of the continent’s total — the door is still open. Investor and consumer confidence has been expected to rise since Cyril Ramaphosa took over as president last February, with plans for new investments and job creation. Ramaphosa has a business and political background and is one of South Africa’s richest men, with an estimated net worth of $450 million.
Real estate agency and consultancy Knight Frank forecast that South Africa is set to see 20 percent growth in its ultra-wealthy population over the next five years, following a 14 percent rise in 2017. Particularly fast growing in South Africa has been the resale value of luxury items, which keeps the demand for these products high.
The concept of sharing a strong retail and design base between the BRICS emerged last October after the 10th BRICS Summit in Johannesburg with a special two-day showing of 10 designers from the five countries at South Africa Fashion Week. This was followed by a forum on business and fashion, which took up questions of collaboration and market sharing.
“The BRICS Fashion show and the Fashion Business Forum is part of the legacy program put forward,” said Vusumuzi Mkhize, South Africa’s director general of arts and culture. “These platforms will provide export opportunities for designers to increase their markets and harness their talents by creating partnerships, collaborations inter-trade, best practices and business development within the BRICS countries.”
But is a retail and fashion relationship between the BRICS too forced?
“Any relationship can really be forged, it is based on trust and being mutually beneficial,” said Lucilla Booyzen, founder of South African Fashion Week. “Because fashion is so global, it is a language and it can be traded, you just have to find the right match.”
Gautam Vazirani, strategist and curator of sustainable fashion at IMG Reliance, told WWD, “I observed that there are quite a few areas where we have similar challenges and can share with each other. One is that all these countries are developing, with China the biggest and furthest ahead and Brazil and South Africa much lower. Each country is on a different trajectory, but the commonality is that each has been going through development phases, markets are opening, the demographic is younger, and each of the demographics are getting heavily influenced by the Western idea of fashion.
“I observed that each country has a big problem with resources except for China. Most are facing a decline in the heritage, have a rich cultural history and a design vocabulary. So, what can we do to create a fashion industry that can stand on its own and not imitate the Western model? Overall, the BRICS countries appear to have similar challenges.”
Designers from the BRICS countries showing included Mantsho by Palesa Mokubung and Clive Rundle from South Africa, Heloisa Strobel Jorge and Helen Rödel from Brazil, Irina Stetsko and Sergey Sysoev from Russia and Zeng Fengfei and Xiong Ying from China.
The format created at the Fashion Business Forum that followed the event is expected to continue, with fashion and textile designers, agents, distributors and other representatives finding ways forward for collaboration.
“That was the crux of the summit,” Vazirani said. “We need access to each other’s markets.”
Lindi Ndebele-Koka, senior manager, Cultural Development, South Africa, told WWD that, “The conclusion was that fashion councils and fashion weeks of BRICS countries will help create a rotational format for fashion, with a similar fashion show as a part of each country’s fashion events. They will also continue to discuss and collaborate on fashion-related issues and challenges, establish accelerator programs for young designers — to help them learn the trends of the fashion industry and find their place within it; create a market access and consumption of fashion among BRICS countries.”