luxury in emerging markets

World luxury market on the up

Isaac Mostovicz writes that a study predicts that the recession is old news for the luxury sector...

Eight percent growth is the estimate given to global luxury sales this year, according to research group Bain&Company.  The firm estimated that revenues would hit EUR185 billion (US$185 billion) in 2011, surpassing its prior peak of EUR170 billion in 2007.

Last year’s result of 12-percent growth was symptomatic of the world recovering from the economic crisis, but this year’s growth continues the trend and will then settle to an average of five to six percent a year up until 2014, say Bain.

The lead author of the study noted that while luxury was back, there were definite changes in the market. “Luxury has made a brilliant return to the retail stage, but the script has been re-written,” said Claudia D’Arpizio, a Bain partner in Milan, “More demanding customers, generational shifts, new loyalty rules, an increasingly integrated offline and digital customer experience and the continued growth of China and other fast-growing markets are transforming the luxury industry.”

Of all the luxury markets worldwide, China is expected to grow the most, attaining a 25% increase this year, and within five years Bain are predicting China (without Hong Kong and Macao) will be third in the rankings for the world’s biggest luxury markets, behind Japan and the US.

For Japan, however, the forecast reflects the devastating tsunami earlier this year. The country faces a 12-month contraction of five percent and will only start recovering in the third quarter.

Galina Barbascumpa says of this article...

Today, a growing number of people believe that ” the brand they wear say a lot about who they are.” and “They kind of like it when others recognize them as being wealthy”. They feel emotionally connected to all the expressions of passion in the brand-its heritage and values, its strengths and styles.

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India’s luxury housing market at a standstill

Isaac Mostovicz writes that many luxury apartments under construction in India are yet to be sold...

Donald Trump is soon to take the Trump brand over to India, but the Wall Street Journal reported recently that India’s surge in luxury property might be a while off yet.

Growth in India has boomed in recent years where there are now more than 126,000 US dollar millionaires. In Mumbai, where Trump’s new 60-story luxury apartment will be launched, around 3,700 luxury properties are currently under construction with a price tag of $1 million or more. Yet of these, around 1,440 are still unsold. In Delhi, one quarter of the 2,300 luxury apartments under construction are unsold. In the last few months, sales have slowed down due to the steep prices, which have seen some properties come with a price-tag of up to $12 million.

In India, property developers tend to ensure apartments have a definite buyer before finishing construction. With higher rates, and fewer interested buyers, many of these prospective apartments may be put on hold which may mean developers have to cut prices or offer perks to entice buyers. This step has not yet been taken, but with the Indian stock market having fallen by more than 10% this year, and banks becoming increasingly cautious about lending to real estate developers, the pressure is on and the clock is ticking.

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New Wealth, New Luxury Market: The Rise of China

Isaac Mostovicz writes that Chinese consumers’ opt for Western luxury status symbols...

China is becoming the biggest luxury market in the whole world, but what is interesting to note is that Chinese-owned luxury brands are hard to come across, while Western brand shops dominate the Asian market.

I have written before about how luxury brands are eyeing up consumers in emerging markets, particularly in China, who have helped contribute to the record sales of numerous luxury labels over the Christmas period.

BBC News published an article this week that contributes to the high volume of discussion over China’s emerging class of consumers.  The article notes, however, that there are few high-end brands that originate from China.

Zhang Zhifeng is the designer of Chinese fashion label Tiger NE which he says is one of the few Chinese luxury brands. “In Beijing and Shanghai, our shops are still mainly surrounded by Western brand shops”, he says.

As the journalist notes, “when people start to become consumers, what they want is a little bit of luxury”. What is apparent in the Asian luxury market trend is that the western ideals of luxury appeal to these new consumers. The idea of “fitting in” with western fashion seems to be the force behind the Asian consumers appetite for luxury, whereby the brand becomes a status symbol.

For Zhifeng’s homegrown brand, though, the increase in luxury consumption in China means good news for his sales. And as more and more retailers realise the differences between the Chinese and Western clothing industries, and the huge potential in moving into the high end fashion business, there might emerge new Chinese-owned luxury brands from those looking for a slice in this expanding market.

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Luxury market surge driven by Chinese tourist lift

Isaac Mostovicz writes that evidence of a thriving luxury goods market continues with announcement of high profits from Burberry. ...

The high-end luxury market is booming, and emerging market tourists are to thank for this. I have written before about how consumers in emerging markets are helping the luxury market to recover from its worst slump in decades, and also how brands are eyeing up ways to attract Chinese shoppers online.

Now luxury fashion brand Burberry has announced that its annual profits will be at the top end of market expectations, thanks largely to Chinese tourists. The brand, which counts six UK stores as well as concessions in Selfridges, Harrods and Harvey Nichols, posted a 27 percent rise in third-quarter sales to $480 million. Of this, there was a 68 percent revenue growth from Asia Pacific, bringing in £150 million. Last September, the fashion house acquired 50 franchise stores in China, and wants to increase that to 100 over the next five years. In the UK, revenues were lifted by the flow of overseas tourists to London. While the Chinese were the biggest spenders in the Burberry UK shops, they were closely followed by visitors from Russia, the Middle East and Continental Europe. Burberry has a 155-year record of making raincoats and handbags, whose trademark camel, red and black check pattern is synonymous with the image of wealth, tradition and heritage.

Looking towards the future, things look bright. Chief Executive Angela Ahrendts said, “Ongoing initiatives in retail, digital, product development and new markets underpin our confidence in the future.” The brand has plans for a digital store format, that will be unveiled shortly, to attract its customers in China.

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A division in luxury spending?

Isaac Mostovicz writes that consumers in emerging markets continue to drive sales for high-end luxury retailers...

While it’s broadly agreed that the global recession has peaked and markets are now in a slow recovery, an interesting trend appears to be developing in luxury purchasing.

In line with the wider economy, mass-market luxury retailers are on the whole experiencing a steady increase in sales. High-end luxury sales however are soaring, experiencing significant year-on-year increases.

As a recent article in the Wall Street Journal identifies, “luxury goods companies are selling to the two groups of people who have any money left: the rich, who are getting richer and richer, and consumers in emerging markets, who are getting richer.”

Not only are emerging market tourists purchasing luxury goods when abroad, but as I wrote in a previous post, luxury retailers are finding new ways to sell online to such consumers in their home country, propelling sales.

But it appears not just the emerging markets that are responsible for high-end luxury sales growth; wealthy consumers in Europe and the US are spending similarly too.

Whether this is a concern for mass-market luxury retailers is yet to be seen, but it’s certainly the high-end luxury market that is booming for now.

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Luxury goes online to reach Chinese consumers

Isaac Mostovicz writes that luxury brands are expanding online to tap into China's new wealth...

Just last week Emporio Armani opened online sales through its own website in one of world’s fastest growing markets for luxury brands, China.

With sales increasing by 20% last year, China is the second largest market for luxury goods, and is set to overtake Japan for No. 1 in just a few years according to consulting firm Bain & Co.

It may perhaps seem delayed that luxury retailers are only just tapping into a nation of shoppers that have undoubtedly embraced the Internet (Chinese shoppers online have doubled over the last year), and are also eager to mark their new wealth by buying luxury labels.

Despite the availability of many Western brands being limited to in-store purchasing, a September 2010 study done by consulting firm McKinsey shows that affluent Chinese consumers prefer foreign brands: 52% of consumers whose annual income exceeds RMB 250,000 (USD 36,765) trust foreign brands more than Chinese ones.

Online sales may therefore seem a lucrative opportunity, however many luxury brands are still reluctant to start selling to consumers via the Internet, fearing they risk brand value since most consumers use the internet to search for discounts.

While the booming retail scene in China has led many Western brands to set up shop and expand their business in the country, will Emporio Armani’s move prompt other luxury retailers to take the plunge and sell directly to Chinese consumers online?

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East India Company Relaunches as Luxury Indian Goods Company

Isaac Mostovicz writes that a company is reborn...

The East India Company, which began as a British trading monopoly under Queen Elizabeth I in 1600 to ship commodities to the West from India, China and the Spice Islands, has relaunched this month as an luxury Indian company. The company has opened a store in London, selling gourmet tea, chocolate, coffee and gifts.

Though the ‘original’ East India Company stopped trading in 1874 (founder of the modern company Sanjiv Mehta bought the intellectual property rights in 2005), the name should remind many today of work that the original company did. Said The Times in 1874 in an obituary for the company (which is now inscribed on a table in the new store):

“It accomplished a work such as in the whole history of the human race no other company ever attempted, or is ever to attempt in the years to come.”

Said Mehta:

“The English language, the ports, the railway system, the civil system … the bridges — all was built by The East India Co. So there’s a huge relationship between The East India Co. and various walks of life. It is not just food products.”

It’s an interesting proposition, starting a modern company that plays upon an earlier company’s provenance. I imagine it will help the company, though the quality of its products will need to be high.

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Chinese consumers demand for online luxury

Isaac Mostovicz writes that luxury is on the rise in China...

A recent survey found that half of China’s urban residents say they prefer buying luxury items online because prices are cheaper than franchised stores.

While this fact is very interesting, and suggests that more companies should make an effort to offer their wares online in China, interest in luxury in general in China is growing rapidly. The Chinese are buying more luxury cars and SUVs than ever before — 500,000 will be purchased this year, compared with 98,000 five years ago. Luxury companies are opening stores (Louis Vuitton opened two flagship stores on the same day in Shanghai earlier this year) or are thinking of opening stores (Harrod’s comes to mind), and luxury hotels (like the Waldorf Astoria Club Hotel) are popping up all over the place.

All this suggests that marketers from the west are beginning to understand how the Chinese interact with luxury, but a great deal more can be done to enhance sales and the experience of buyers. The key is understanding how individuals interpret luxury, and this often comes down to understanding culture.

Photo by gruntzooki

Jing Daily says of this article...

I agree that online is a key access point for Chinese consumers, due to the convenience as well as avoiding the additional luxury and import taxes products in stores have. Though many luxury brands are beginning to understand how to interact with the new wealth class in China, many are not connecting effectively enough online. With younger and more sophisticated consumers spending more and more time online, digital outreach in China’s unique online landscape is gaining more and more importance. L2 ThinkTank did a study on the digital IQ of some of the top luxury brands.

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An unconventional luxury trend in India

Isaac Mostovicz writes that a growing high-ticket pen industry is yet another indicator that luxury in Asia and growing and diversifying rapidly....

What comes to mind when you think of luxury? Cars? Homes? Clothing?

In India, think pens.

As India’s luxury market grows, it is also diversifying. According to the Times of India, demand for luxury pens is growing very quickly.

Nikhil Ranjan, CEO, of William Penn, India’s only multi-brand retail store chain housing premium fine writing instruments said:

The luxury pen segment in India is growing and a good brand or a designer pen is a latest must have. Consumers falling into the 51 years and above age bracket buy the highest number of such pens.

Prices for luxury pens in India range from ($350) to Rs. 10 million ($220,000).

Comments made by Dominique Lesueur, export director at S.T Dupont, are sure to put other luxury brands and designers on notice that India is where the action is right now:

India is the second fastest developing economy in the world after China. Plus, it has a promising luxury pen market thanks to the growing consumer base with disposable income and a strong aspiration for luxury brands.

The growing consumer base with added disposable income has become the narrative against which Asia’s luxury rise has come to be what it is today. As other countries emerge from the recession and money begins to flow again, India is likely to have a leg-up in luxe.

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Luxury in India takes centre stage

Isaac Mostovicz writes that India's dominance in Asia's luxury market is beginning to attract major players in global luxury...

New reports suggest that India’s luxury market is growing and maturing quickly. Earlier this week Forbes reported that the luxury boutique hospitality association, Relais & Chateaux, recently launched in India.

Relais & Chateaux president Jaume Tapies said:

We currently have 40 members in Asia and I’m confident that we can reach 100 in the next three years. We started looking at India in 2007 and enrolled our first member two years ago. We plan to add five more members in the next 18 months. My big surprise in coming to India was when I saw the deep understanding there is for what we stand for.

Mr Tapies’ findings about India are not surprising. I’ve written previously about luxury real estate in India taking off, and luxury automakers fighting for dominance in the Indian market.

What Mr Tapies’ findings do mean is that more major brands in the luxury industry are taking notice. What started as a small drip of interest at the end of 2009 has turned into more of a torrent.

Mr Tapies’ quote “I saw the deep understanding there is for what we stand for” is very interesting, too. Relais & Chateaux is for the discerning luxury customer. Considering the price point for their rooms, it’s clear their primary target market are Theta personalities. Much of India’s newly-wealthy class could be considered Thetas.

Thetas are concerned with truthfulness and denounce fakes. The screening process to become a member of Relais & Chateau is a long-term assessment to determine whether the hotel is “real” or “fake”:

We have a team of nine inspectors who visit the property incognito and submit a technical report to the board which makes the final call. Typically, the process takes a year. We have to be scrupulous as 1.5 million people trust Relais & Chataeux every year. Collectively, our properties do 750,000 room nights annually at an average room rate of 345 euros.

Relais & Chateaux is catering to those in India who, now with greater incomes, are becoming hyper-aware of how they are perceived by others, especially those they believe to be part of the social class that they wish to belong.

The people who stay at these hotels know the rigorous inspection process that member hotels undergo. Because this is such public information, it adds to the allure for an Indian Theta.

When they book a reservation to stay at a Relais & Chateaux hotel, they are likely to tell their friends and colleagues. They need people to know that they are able to afford to stay at such an exclusive hotel in their home country.

As more major luxury brands take notice of India’s heightened luxury profile, it could inspire neighbouring Asian countries to take notice and make some changes.

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