SEOUL — The South Korea market for luxury goods is clocking double-digit growth and that momentum is likely to continue, according to a recent study from McKinsey & Company.
“A number of trends, small and large, are creating a model of sustainable growth for the next three to five years,” wrote a team of McKinsey researchers led by Aimee Kim. The South Korean market for luxury goods has risen at least 12 percent a year since 2006 to an estimated $4.5 billion in 2010; “heavy purchasers” continue to drive the business and women in their 20s and 30s are quickly developing a taste for luxury items, according to the report.
In 2009, Prada chose Seoul to be the home of its pop-up art structure Transformer and this summer Fendi hosted a fashion show here, underscoring the importance of the market.
For its research, the consultancy surveyed 1,000 Koreans who had purchased at least 1 million Korean won (about $930) in luxury goods over the previous year. Its research team also interviewed 24 senior executives of luxury goods companies.
The consultancy highlighted the importance of “heavy purchasers” in South Korea and stated that both Lotte and Shinsegae department stores saw a sharp spike in VIP customers last year. Lotte estimated that the number of its customers spending at least 15 million won, or $14,000, rose 14.4 percent compared to 9.2 percent growth for other types of luxury customers. The number of customers at Shinsegae who spend at least 8 million won, or $7,400, grew 35 percent while the number of other customers grew 12 percent.
“Korea has more and more high-spending luxury buyers; these buyers are by no means stated; they like what they buy; and they don’t pinch their won too hard,” the report stated.
Younger Koreans’ newfound love for luxury items also portends promising sign for the high-end market, according to McKinsey. More than a third of those surveyed under the age of 35 surveyed said that they were buying more luxury items than in the past, compared with 18 percent of those over 50.
McKinsey explained that women dominate Korea’s luxury spending, accounting for 90 percent of purchases. Although a relatively low percentage of women are working fulltime, that figure is growing and the fact that women are earning more money is “hugely significant,” the report said. On the other side of that demographic, men account for only 9 percent of the market but that segment is destined to grow.
Luxury players should also take note of the fact that Korean luxury consumers are increasingly interested in expressing their own style and individuality instead of just transmitting their social status, McKinsey said. Of those surveyed, 45 percent agreed that “owning luxury goods is not as special as it used to be,” compared with 21 percent in 2010.
“The desire for more individuality is leading to the introduction of new luxury brands, making the market more competitive,” the report said, citing the success of brands such as Miu Miu and Alexander McQueen.
McKinsey also stressed that Korean consumers are technology-savvy and becoming increasingly savvy about seeking out the best prices. But at the same time, they are using the internet to research products and compare prices rather than for online shopping.
“[E]ven though people are getting more price-sensitive, they still see the in-store experience as an important aspect of luxury shopping, and their concerns about authenticity, sizes, and service have not yet been addressed [in an online format],” McKinsey said.