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Luxury Market Trends in Emerging Markets – An Overview by Athena Tavoulari

The three dominant trends in the global luxury goods market are globalization, consolidation, and diversification. Globalization is a result of the increased availability of these goods, additional luxury brands, and an increase in tourism. Consolidation involves the growth of big companies and ownership of brands across many segments of luxury products. Examples include LVMH, Richemont and PPR, which dominate the market in areas ranging from luxury drinks to fashion and cosmetics. Leading global consumer companies, such as Procter & Gamble, are also attracted to the industry, due to the challenge in achieving their profitability margins within the mass consumer goods market.

The growth in the luxury market has greatly expanded the availability of luxury goods to a wider audience of consumers. Luxury goods have also become more affordable to a wider range of consumers than ever before, as personal incomes rise in a number of emerging markets, such as the Middle East, China, Russia, or India and luxury marketers offer up less luxurious product lines at more reasonable prices. Where once you had to travel to Paris, London, New York’s 5th Avenue or Rodeo Drive to shop the luxury leaders’ stores, today you can find the same luxury brands in malls across the country. And if you can’t find what you want at the local mall, you can go online and find an incredibly wide selection of the top luxury brands to shop to have delivered to your door.

Thus luxury “class” today is going more “mass”, as more and more people of moderate means reach up for their personal luxury indulgence. Luxury is no longer confined to just the upper class ─ as in many emerging markets, everyone feels entitled to luxury. Our escalating lifestyles mean that what used to be luxury is now necessity. Further, consumers’ personal values are predisposed to luxury indulgence due to the emergence of a younger, more affluent luxury consumer.

The baby boom generation luxury consumer has a passion for self-indulgence while maintaining an iconoclastic world view, which is transforming the luxury market from its ‘old’ conspicuous consumption model to a totally new, “individualistic” type of luxury consumer one driven by new needs and desires for experiences.

Luxury Goods Growth analysis

From 2005 until 2007, sales of luxury goods were booming in developed markets, as well as in emerging economies. Distribution channels were considered key to luxury brands and outlet stores, licensing, joint ventures and wholesaling all helped brands to expand their footprint rapidly, along with retail network growth.

However, from 2008 until 2010, as global economic downturn began making an impact, the luxury goods market cooled rapidly. However, China’s progress proved unstoppable and as a result brand attention is being focused ever-more closely there.

As a number of industry reports indicate, the number of Chinese, Indians and consumers from the Middle East, who can afford high-end goods is increasing, and they may save for months to buy an expensive handbag. The luxury market is considered as a European industry with a high exposure to emerging markets, where you are going to see strong growth in consumer spending.

A “made in Europe” label is highly coveted abroad, and brands such as Hermes and Louis Vuitton have pricing power, which is “very rare in the current environment,” said Rahul Sharma, founder and managing director of Neev Capital, a London- based consulting company. “In emerging markets, luxury-goods prices are actually much higher than in Europe.”

Shoppers in China accounted for 25 %of industry sales in 2010, compared with 21%for European shoppers, according to a January 4 report written by Goldman Sachs Group Inc. analysts led by William Hutchings in London. By 2025, China may make up 46% of total revenue, they wrote.

The global luxury market of 2011 still bears the marks of recent global recession. However 2011 brought better news, albeit against a changed market landscape. In more detail:

  • “Bling” and aspirational luxury is out, but value is only rarely defined by price; brand equityis paramount
  • Middle East (especially GCC countries), China, Russia, India and other emerging markets are firmly established as the focus of growth
  • The consumer base is becoming younger, driven by a new generation of white-collar workers in emerging markets
  • New technologies are changing how consumer approach luxury brands; the influence of social networking is unavoidable
  • Manufacturer/retailer relationships have lost an element of trust, with more brands migrating to own stores.

In other words, it is quite obvious that emerging economics are now becoming the main driver of today’s global luxury goods industry. Data shows that total luxury spend in emerging markets experienced a growth of 43% in real terms between 2005 – 2010, reaching 30B USD, compared to just 6% in the developed markets.  As research shows, the main challenge within the global luxury goods market is to remain selective, while accessing enough customers and sales.

Posted by on Jan 31 2012. Filed under Consumer Products & Services, EMEA, Expert Opinion, Featured, Leadership. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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