Despite trade tensions and political turmoil, the market for personal luxury goods grew by 4 percent to reach 281 billion euros in 2019. The growth came mostly from Asia.
But as the new decade dawns, what are the market dynamics to keep an eye on?
Mainland China: Getting Domestic
Although the economic juggernaut of China has slowed, personal luxury purchases have not: They grew around 26 percent in 2019, according to consultancy Bain & Company. Within five years, Chinese consumers could be responsible for almost half of all luxury purchases, the analysts said.
Thanks to previous Chinese government tariffs, a lot of those purchases — an estimated 70 percent — were made while traveling, because locals could get their handbags and shoes for, on average, about a 25 percent less outside the country.
More recently though, the Chinese government has wanted to encourage consumption inside the country. A change in policies, alongside price harmonization by luxury brands, means price variations are no longer so big. Also an issue: Anti-government protests in Hong Kong are keeping travelers at home. Additionally surveys have suggested that younger Chinese travelers are focusing less on shopping and more on touristic experiences.
By 2025, experts at Bain suggest Chinese shoppers will be making about half of their luxury purchases inside their own country, double what they buy at home now.
“Three or four years ago, you would see subsidized tours with buses full of shoppers. And it was important to buy outside the country — then you knew [your purchase] wasn’t a fake,” explained Karine Szegedi, head of fashion and luxury at Deloitte in Switzerland. “But that behavior has really shifted. Now a lot more retailers have opened mono-brand stores inside the country. They want to get closer to the Chinese consumer, to understand them better,” Szegedi told WWD.
South East Asia: Premium Class
By 2022, Thailand, Malaysia, the Philippines, Vietnam and Indonesia will have around 350 million middle-class consumers and that growing middle class is graduating from premium products to the luxury sector.
Analysts have a variety of buzzwords to describe these aspirational consumers: HENRYs (high-earner, not-rich-yet), mass-affluent and consumers who want “mass-tige.” Boston Consulting Group suggests this group is growing faster than the middle class in Southeast Asia, by 8 percent a year in Thailand, Vietnam, the Philippines and Indonesia. By 2030, the mass-affluent will make up 21 percent of the population in those countries, BCG predicts.
There are other statistics worth considering, too: Combine all of their GDPs and the ASEAN nations have the fourth-largest economy in the world, with the third-largest population. Bain & Company reports that sales of personal luxury products are growing in the region already, rising 8 percent in 2018. Additionally, the average age in the region is around 29, which means more locals entering the workforce for some time to come. Also having an impact: Chinese shoppers traveling to the region to buy luxury.
South Korea: Exporting Culture
Young South Korean consumers contributed to what Bain experts described as a “dynamic” market in the country. And South Korea became the Kering Group’s second-biggest emerging market after China in 2017. But South Korea also deserves a mention for the so-called “hallyu” (or “Korean wave”) trend, which includes everything Korean, from cuisine and drama to K-pop and K-beauty products. Whereas once trends were set by European fashion and beauty brands, consumers in emerging Asian markets are looking for indigenous creativity. It’s another reason why so many Chinese shoppers are going to South Korea. It all equals stiff competition for European luxury brands: South Korea recently became the biggest source of cosmetics for Chinese shoppers, beating out France’s L’Oréal.
India: Ever-Growing Middle Class
The market for luxury in India continues to grow although it is the slightly less expensive premium sector that will see the best numbers, with 7.5 percent compound annual growth rate annually, according to consultancy Ernst & Young. Those numbers are being driven by newly affluent locals, increasing online sales and markets developing outside the major metropolitan centers, it said in a report released in 2019.
The middle class in India is predicted to grow faster than counterparts in China or Brazil, at 1.4 percent a year between now and 2022. Even though currently there’s a bigger market in the country for more price-conscious fashion, “India is set to move from being an increasingly important sourcing hub to being one of the most attractive consumer markets outside the Western world,” consultants at McKinsey have argued.
Latin America: Mexican Potential
Thanks to various political and economic crises in Brazil, Mexico has recently overtaken its southern neighbor in luxury purchases. Statista said sales of luxury goods, expected to total just over $4 billion in 2020, should keep rising around 1.6 percent a year. That makes it the biggest and fastest-growing market for luxury in the region. That’s based on growing numbers of Mexicans entering the middle class: By 2030, over half of all Mexican households — an estimated 18 million — should have climbed into that category.
Middle East: Bigger Spenders
Even though locals in Middle Eastern countries are dealing with geopolitical and social turmoil, a fall in oil prices — the source of many Gulf state shoppers’ wealth — and lower consumer confidence, it’s worth considering that the average shopper in the United Arab Emirates and Saudi Arabia still spends about six times more on fashion purchases than their contemporaries in China. Personal luxury shopping in the region grew around 3 percent in 2018, according to Bain and can be expected to stay between that and 5 percent over the next five years.
Dubai, in the UAE, remains the largest hub for luxury shoppers, with sales there contributing 30 percent of the total in the region. A significant proportion comes from increasing numbers of tourists.
Russia: Back on Track?
Despite an economic slowdown, McKinsey reported in its annual “State of Fashion” study that Russian luxury consumption may be back on track soon. “In 2018, LVMH, Dior and Tiffany all reported the highest sales in the region since 2014,” analysts wrote.
Online: The New Digital Frontier in Emerging Markets
Sales of luxury goods are growing faster online than in physical stores, according to Euromonitor International, and this seems to be particularly true of emerging markets.
There is plenty of potential. In developed countries, e-commerce tends to make up over 10 percent of total retail sales. In emerging markets, such as India, Brazil or Turkey, it’s still below 5 percent, Bain reported in 2019. Analysts at Bain, working together with Google, listed the rates of penetration: averaging at around 1.9 percent in the MENA region, and then India and Indonesia only just above 2 percent.
At the same time, more and more consumers are coming online, particularly in Southeast Asia. In Indonesia, 83 million locals got on the Internet between 2016 and 2017, equaling an increase of 74 percent. Vietnam’s users grew by 63 percent, and Thailand’s and Vietnam’s by over 50 percent. In Russia, e-commerce grew by 26 percent in the first six months of 2019 and, as Bain researchers also noted, the average annual growth rate for e-commerce in the Middle East is far higher, at around 25 percent.