Luxury Goods Global Trends and Prospects PDF
Luxury Goods Global Trends and Prospects PDF
Luxury Goods Global Trends and Prospects PDF
May 2013
INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS
INTRODUCTION
Scope
Values expressed in this report are in US dollar terms, using a fixed exchange rate (2012). 2012 figures are based on part-year estimates. Unless otherwise stated, all data, both historical and forecast, are expressed in constant terms; inflationary effects are discounted.
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised.
Luxury Goods
Designer Apparel Luxury Cigars Luxury Accessories Luxury Jewellery and Timepieces
Despite persistent economic turbulence, mounting troubles in the Eurozone and political instability in several emerging markets, the global luxury goods market remains largely positive. The pursuit of luxury has been sustained, with both absolute and affordable luxury rebounding strongly. With a new world order at stake, highlighted further by the BRIC growth story, luxury brands are using innovative ways to compete in this highly challenging industry.
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INTRODUCTION
Objectives
The core objective of this report is to examine the state of the global luxury goods industry in 2012. The report will analyse the impact of the global economic difficulties being faced in the developed markets, especially the Eurozone, teamed with a slowing of growth in the developing markets, and what effect this is having on the performance of specific markets and individual channels. The report will compare and contrast sales performance globally in terms of how different markets and categories are growing or contracting in value terms. The report does not claim to be comprehensive, focusing on key industry categories, but rather seeks to offer high-level insight into key changes in the market at a time of manifest macroeconomic instability.
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INTRODUCTION
Key findings
Continued growth in After a significant decline in 2009, the global luxury goods market saw another solid performance in 2012, despite persistent economic turbulence, mounting troubles in 2012 in face of the Eurozone and ongoing political instability in several emerging markets. growing austerity measures Growing number of wealthy consumers across the globe Advanced economies the biggest luxury goods markets The worlds wealthiest consumers are increasing in number. The US, Japan, China, Germany and France were home to some 8.5 million households with an annual disposable income over US$300,000 in 2012. The advanced economies still represent the main source of luxury spend worldwide accounting for almost 73% of total value sales in 2012 . However, their performance although positive is expected to be considerably weaker than that of emerging economies over the next five years.
Emerging economies The BRICs are expected to be key drivers of global luxury goods growth over 2012key drivers of growth 2017, with value sales in these countries increasing at a 12% CAGR. Absolute luxury is the new benchmark Affordable luxury a status stepping stone Luxury and technology fully integrated
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Absolute luxury was one of the big winners in 2012. High-end fashion house Herms International, for example, had a particularly strong year, with a rise in its 2012 fullyear earnings guidance. Strong investment is still being seen in secondary or diffusion luxury collections, as a means to drive demand in lacklustre markets. The premise remains that consumers can spend less but still feel good about the designer label they purchase. Luxury consumers in developed countries have embraced technology, with social media and online retailing playing an important role for luxury brands in order to engage with their customers, receive valuable feedback and gain loyalty.
LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS PASSPORT 5
INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS
GLOBAL PERFORMANCE
Year-on-year % growth
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GLOBAL PERFORMANCE
On the flip side of this success is iconic British luxury brand Mulberry. In response to pre-tax profits dropping by 36% for the six months to the end of September 2012, Mulberry has repositioned itself as a more upmarket luxury brand. Quality, Made in England, communication, distribution and service are at the forefront of the brands reinforcement, alongside a cull of wholesale accounts where discount activity was rife. The reduction of Mulberrys wholesale footprint has reflected a move away from the so-called affordable luxury which has preciously served the company well. The shift upmarket has, however, squeezed profit margins due to the use of higher quality materials and more sophisticated manufacturing, which will lead to a considerable increase in unit prices in the short to medium term.
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GLOBAL PERFORMANCE
Herms International Net Sales First Half 2011 and First Half 2012
500
400
300
200
100
0 Net sales first half 2011 Net sales first half 2012 France Europe (excluding Japan Asia Pacific (Excl Japan) Americas
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GLOBAL PERFORMANCE
GLOBAL PERFORMANCE
Chinas HNWIs are travelling less and spending less on luxury goods in the West due to a slowdown in economic growth.
Luxury Brands
Increased caution regarding luxury spend within the middle classes of the emerging markets, especially China
Slowdown on luxury spending in the West due to persistent economic turbulence and mounting troubles in the Eurozone
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GLOBAL PERFORMANCE
Americas
Europe Asia Pacific Italy Japan Other countries
Source: Company Annual Report 2012
224.7
348.7 532.5 259.3 143.9 15.6
30.8%
39.1% 44.7% 21.5% 34.2% 149.8%
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GLOBAL PERFORMANCE
Source: Euromonitor International, World Wealth Reports 2012, Capgemini and Merrill Lynch Wealth Management
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GLOBAL PERFORMANCE
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GLOBAL PERFORMANCE
10%
0% China India Russia Brazil US UK Germany France Social class A
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INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS
REGIONAL INSIGHTS
World average
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REGIONAL INSIGHTS
Whilst Japan remains by far the regions largest market in value terms, it was also the slowest growing across the Asia Pacific markets in 2012.
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REGIONAL INSIGHTS
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REGIONAL INSIGHTS
10
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REGIONAL INSIGHTS
South Africa
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REGIONAL INSIGHTS
0
-2 -4
Latin America is the fourth biggest region in luxury goods and has enjoyed double digit growth in the past five years contributing just over 9% of the total incremental value to luxury between 2007 and 2012. Brazil and Mexico together are responsible for almost half of Latin America luxury goods value sales. However, Argentina was by far the most dynamic market, growing by a 51% in real terms over 2007-2012. This impressive trajectory is likely to continue in the short to medium term, in light of the fact that the US$125,000150,000 annual income band is projected to post the fastest growth of 98% over the 2013-2020 period, boosting the luxury industry. Nevertheless, luxury brands still face many challenges in the lucrative Latin America market, such as high import duties, political instability, new import substitution policies and high inflation.
Value growth %
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US$ Billion
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REGIONAL INSIGHTS
Romania
2012 2007
United Kingdom
Poland
Russia
Ukraine
-20
-10
0 % Savings Ratio
10
20
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REGIONAL INSIGHTS
Eastern Europe Luxury Goods Value Sales US$ Billion and % Growth 2007/2012
20
8
7 6 5 4 5 % Value Growth 10
0
3 2 -5 1 0 Russia 2007 Poland 2012 Ukraine Romania -10
2007/12 % growth
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REGIONAL INSIGHTS
-6
65 -8 60 2007 2008 2009 2010 2011 2012 -10
North America World % Value Growth 2007/12 North America % Value Growth 2007/12
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REGIONAL INSIGHTS
2007-2017 Luxury Goods Retail Growth Constant value % High-growth Mid-growth Low-growth
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REGIONAL INSIGHTS
Spend % share of total (US$ million) global spend 76,913 31,657 21,179 19,365 17,938 14,378 12,403 8,769 7,280 6,271 25.5 10.5 7.0 6.4 5.9 4.8 4.1 2.9 2.4 2.1
USA Japan Italy France China United Kingdom Germany Russia Spain South Korea
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REGIONAL INSIGHTS
2012
2007
0% USA
10% Japan
20% Italy
40%
50%
60% Germany
70% Russia
80% Spain
100% ROW
United Kingdom
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REGIONAL INSIGHTS
20
10
However, diversity amongst spending patterns still exists within the emerging markets, as these economies are at very different stages of development.
-5
Forecast
-10
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Developed
World
Emerging
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REGIONAL INSIGHTS
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LOSERS
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INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS
CATEGORY INSIGHTS
0
DA LJT LAC SPBPC FWCS LCIG LTG LWS LEG
-20
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CATEGORY INSIGHTS
Designer apparel
Designer apparel accounts for almost half luxury Valued at US$132 billion in 2012, the global market for designer apparel was by far the largest luxury goods category accounting, for 44% of total luxury sales. Led by China, this category is expected to retain its lead, increasing by 20% in value terms to reach US$158 billion by 2017. Whilst much of this this growth is owed to geographical expansion, one of the critical strategic challenges of the years ahead will be the risk versus the opportunity of retail expansion. Increased consumer base Affordable designer apparel has democratised what was once the exclusive terrain of HNWIs, creating a vastly enlarged potential consumer base. At the same time, affordable luxury has built new consumer corridors, connecting fast fashion, mass brands and luxury brands. Designer apparel remains aspirational as a concept, but thanks to affordable luxury it is now more accessible too.
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Growth of diffusion brands Designer apparel positioned at accessible price points, teamed with retail expansion, has been a key industry battleground, and increasingly the core revenue drivers of some of the worlds fastest growing luxury goods players. There has been stronger investment in secondary or diffusion designer labels as a means to drive demand in lacklustre consumption bases, reflecting a shift in middle income shopping culture in austerity hit developed markets. Price platforms and brand heritage 2012 witnessed some designer apparel brands shifting upmarket to promote a more exclusive image, while others moved downmarket to cash in on trends in affordable luxury. Fuelling the strategic conundrums were issues of wholesale footprint, retail expansion and the extent to which brand ubiquity and discount activity threaten prestige heritage.
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CATEGORY INSIGHTS
140
20
80
5 60 0 40 -5
There are numerous drivers of this growth, but most important is the rising number of middle class consumers who can spend beyond the immediate needs of food and utilities. It is these consumers who are purchasing higher value products and driving overall consumption.
20
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-10
China
Emerging
Developed
World growth
China growth
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CATEGORY INSIGHTS
% value growth
+3% growth
2007 US$73 billion 2012 US$74 billion
4 2 0 -2
-4
-6 -8 2007-08 2008-09 2009-10 Men 2010-11 Women 2011-12 Total Children
+2% growth
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CATEGORY INSIGHTS
0
2007 Luxury Jewellery 2012 2017 Luxury Timepieces
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CATEGORY INSIGHTS
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CATEGORY INSIGHTS
Louis Vuitton
Versace
In July 2012, Louis Vuitton (LVMH), the worlds biggest luxury goods company renowned for its handbags and designer dresses opened its first dedicated haute joaillerie boutique in Paris's Place Vendme. The company reported a 46% increase in revenue growth within its jewellery and watches between 2011 and the launch in 2012.
In summer 2012, Versace launched a high-end jewellery collection, and plans to open a dedicated standalone fine jewellery stores in the short to medium term. Similarly, Bottega Veneta, Herms, Dolce & Gabbana and Ralph Lauren have all moved into high-end jewellery in the past few years, following the lead of Gucci, Chanel and Dior.
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CATEGORY INSIGHTS
Fine Wines/Champagne and Spirits Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery
Luxury Accessories Luxury Travel Goods Super Premium Beauty and Personal Care
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CATEGORY INSIGHTS
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CATEGORY INSIGHTS
Luxury Accessories
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INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS
ROUTE TO MARKET
Retail Innovation
Initially seen in fashion flash sales, the pop-up concept is expanding to most key consumer categories, including luxury goods. While the original purpose was to create an immediate buzz around a luxury brand or product line, new developments are trying to merge the pop-up within the high-end department store and standalone store concepts.
With exclusivity being a key theme in the latest success stories, luxury brands have become increasingly aware of the risk versus the opportunity of retail expansion, especially in China. While many luxury retailers have expanded rapidly in China, there are now signs that the mushrooming visibility has weakened the prestige value of such brands, which have lost some of their cachet due to growing retail ubiquity. Much of the growth in the developed markets will be driven by mainland Chinese and Russians, who are frequent visitors to luxury hotspots and consider them mainstay shopping destinations. Prices for luxury goods in mainland China and Russia are often 30-50% higher than in Europe and Hong Kong, due to high levels of consumption tax. Luxury goods retailers faced multiple challenges from e-commerce in 2012. Whilst digital technology has been a means to attract a wider consumer base, there is the risk of cannibalising bricks-and-mortar sales, encouraging discount activity and fuelling online counterfeits. But, the internet and the mobile internet is the fastest growing channel of retailing.
Retail Expansion
International Shoppers
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ROUTE TO MARKET
Burberry will use its new Regent Street store as a template for future stores, and is likely to be copied by other retailers.
Aside from its digital sophistication, by wholly integrating brick & mortar with its online platform, the store promotes a more egalitarian retail environment than is normally associated with luxury stores. The come and hang out ethos of Burberrys new store echoes the highly successful retail model of the latest luxury shopping mall developments.
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ROUTE TO MARKET
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ROUTE TO MARKET
To strengthen its image in Asia, Louis Vuitton opened its first China Maison in Shanghai in 2012. This super luxury store has invitation-only floors and sells ultra-high-end one-offs and a Made to Order service, which is only offered in Sydney, London, Tokyo, Milan and Shanghai. Louis Vuitton hopes that the store will reenergise the prestige appeal of the brand amongst Chinas wealthiest consumers. Creating ever more luxurious retail locations remains a priority. For example, The Island, located at Singapores Marina Bay, is a floating store intended to recall the days of cruise ship travel.
No stranger to retail innovation, Herms has made some tentative steps towards building a multi-brand strategy in the Chinese market. Shang Xia stores were created by the company in 2010, but are run as independent operations selling Chinainspired luxury clothing, jewellery and furniture. In 2012, the company opened its second Shang Xia store in Beijing, and plans to expand the brand to the European market, with its first store opening in Paris in 2013. This two-year gap shows that the companys emphasis is on building value slowly.
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ROUTE TO MARKET
Price Another consideration for Chinese travellers is price. Many international luxury brands choose to price their products higher in China than they ordinarily would in their countries of origin. This helps to create a feeling of exclusivity, which is particularly appealing in the worlds most populous nation. Furthermore, luxury items are subject to higher sales taxes, making these products even more expensive. Consequently, luxury items sold abroad are often cheaper in comparison to Chinese retail prices. This is a major driver of duty-free sales.
Status Many Chinese consumers, including many more affluent individuals, have yet to travel beyond China. Given that even Hong Kong and Macao require visas for Chinese citizens, international travel is restricted. The minority who do travel abroad are therefore held in high regard because of the wealth and status attached to foreign travel. The ability to show off by purchasing luxury items or products exclusive to international outlets is an additional benefit for Chinese travellers purchasing luxury products abroad.
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ROUTE TO MARKET
Average Inbound Spend US$ per Arrival 2011 5,000+ 3,000-4,000 2,000-3,000 1,000-2,000 500-1,000 0- 500
Figures: China 2011 inbound spend per arrival US$ fixed ex rate
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ROUTE TO MARKET
300
100
50
Spain
0 2008 Grocery Non-grocery 2012 Non-store Hong Kong 0 2 4
10
12
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ROUTE TO MARKET
Store-based
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ROUTE TO MARKET
2004
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Designer Apparel Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery
Super Premium Beauty and Personal Care Fine Wines/Champagne and Spirits Luxury Cigars
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ROUTE TO MARKET
The Pros
The Cons
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INTRODUCTION
GLOBAL PERFORMANCE
REGIONAL INSIGHTS CATEGORY INSIGHTS
ROUTE TO MARKET
FUTURE OUTLOOK AND RECOMMENDATIONS
350
Australasia
300
200
Latin America
150
Asia Pacific
100
North America
50
Western Europe
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Forecast categories
Whilst designer apparel is forecast to remain the world's largest luxury category, accounting for 42% of total luxury revenue in 2017 and expected to show the greatest growth in absolute terms, the fortunes of global luxury goods will rest mainly on the performance of the industry's fastest growth category luxury jewellery and timepieces. This category is projected to grow by more than 38% between 2012 and 2017, to reach a value of US$76 billion, at constant 2012 prices, and will make up 20% of global luxury spend. Luxury Goods Forecast Sales and Growth by Product Category 2012-2017
160 US$ billion 2017 140 120 100 80 60 40 20 0 2017 sales % growth 40 35 30 25 20 15 10 5 0 % Value Growth 2007-2012 180 45
Fine wine champagne and spirits Super premium beauty and personal care Luxury writing instruments and stationery
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Fine Wines/Champagne and Spirits Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery
Luxury Accessories Luxury Travel Goods Super Premium Beauty and Personal Care
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The luxury industry is still very young and evolving within the emerging and frontier markets, and will experience significant growth in the short to medium term. Major shifts within consumer preferences, sophistication and consumer types are highly likely. Luxury brands will need to be prepared for the next big thing in order to compete successfully
Retail innovation
. Gone are the days when a luxury label was a guarantee of success. As consumers shift into a more . discerning gear, luxury retailers must be one step ahead of the game, whether that be through fusing bricksand-mortar retailing with digital technology, the use of pop-up stores and flash-sales or by creating uber luxury super stores.
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REPORT DEFINITIONS
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REPORT DEFINITIONS
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