Eastern European luxury markets not to recover before mid 2010


Oliver Petcu | November 16, 2009

Oliver Petcu, managing partner of CPP Management Consultants Ltd, forecasts when the most promising Eastern European luxury markets may see recovery and gives an updated break-down of each sector’s current performance.

Oliver Petcu, managing partner of CPP Management Consultants Ltd, forecasts when the most promising Eastern European luxury markets may see recovery and gives an updated break-down of each sector’s current performance.

While China, Korea and Brazil make international headlines with their booming luxury markets, Eastern Europe, not long ago, a priority for luxury brands, continues to suffer from the international crisis. The majority of luxury markets in Eastern Europe countries are not likely to start recovering earlier than mid 2010. Moreover, Ukraine is likely to see a recovery in the fourth quarter of 2010.


The second largest market in Eastern Europe (EU) after Poland, Romania had until the debut of the crisis, the biggest potential for growth in its luxury market. The most affected segments of the luxury industry have been auto (sales drops of up to 50%) and hospitality (sales drops of up to 40%). Jewelry and watches sales decreased by 30% in the first 9 months of 2009, while sales in fashion, accessories and cosmetics have dropped by 20% in the same period.

The least affected segments have been SPA (well being) which remained stable and fine wines and spirits which dropped in sales by 10% in the first 9 months of 2009. The winter holidays season will not bring major improvements, the only segments which will see lower decreases of sales are fashion, accessories, perfumery and cosmetics. As for the watches and jewelry segments, high value products will be acquired by the wealthy Romanians abroad, which will likely maintain the downward trend of the segment. As for hospitality, the month of December will bring sales increases for events, yet occupancy rate will continue to drop, reaching an average of 30% in January and February 2010.

In a statement early this year, CPP Management Consultants Ltd estimated the Romanian luxury market will recover by the end of 2009. Unfortunately, the current political turmoil ahead of November 22nd Presidential elections has led to the suspension of the payments of the loan from the IMF. For more than one month, Romania has had a interim government with very limited powers, therefore all anti-crisis measures have been halted.


The fight against corruption has brought up many cases which has resulted in heavy fights among the main political parties. The anti crisis measures such as reducing VAT have not yet shown results. Until the debut of the crisis, real estate and constructions have been the 2 major industries which generated fortunes for many wealthy Bulgarians. Over half of those who were involved in real estate do no longer afford nowadays luxury products. Access to bank loans has been more and more difficult, therefore many entrepreneurs have seen their businesses suffer or even go bankrupt. The tourism industry, another major industry and source of wealth, has had its worst performance in the summer season of 2009. The Bulgarian media publishes on a regular basis information on hotels which are sold for a fraction of their value. Many projects of residential complexes at the Black Sea have been stopped.

The worst affected segment of the Bulgarian luxury industry has been the auto with sales drops of up to 60% in the first 9 months of 2009. Many wealthy Bulgarians no longer afford to pay their leasing monthly fees so they gave up their luxury cars. The luxury hotel market in Sofia and Varna dropped by 20% in the first 9 months, while luxury hotels at the seaside registered 30% less sales compared to the same season 2008.

Fashion and accessories sales decreased by 30%, especially in the case of multibrand distribution. The outlook for the winter holidays season is a drop of only 15%. As for watches and jewelry, sales dropped by 30 to 35% in the first 9 months and the rest of the year will end with the same trend.


The second market after Romania in the potential of its luxury market, Serbia has begun to see the effects of the crisis later than other Eastern European economies. Its position outside the EU has maintained a constant flow of aid which has helped the economy. The National Bank of Serbia has been praised as being the most efficient in the entire Eastern European region, managing to maintan the value of the dinar.

The Serbian luxury market relies on the upper middle class and not the super rich, who have been making their purchases of luxury goods abroad even before the crisis started. The upper middle class is made up of entrepreneurs, lawyers, middle and top managers in multinational companies, expatriates – entrepreneurs/employees etc. Their revenues have not dropped significantly, yet many of them have started to save money and be more selective about their purchases of luxury goods. They buy less pricy items and choose more unseasonal products.

Fashion and accessories sales have dropped by 20% in the first 9 months of 2009 and the outlook for the winter holiday season is likely to improve sales by at least 10%. Watches and jewelry sales will continue the downward trend, especially due to the fact that the wealthy consumers have become more price sensitive. The duties and taxes on watches and jewelry are still high, which sends rich customers abroad, especially for more expensive items. The luxury hotel market has only dropped by 10% in the first months of 2009, especially due to the fact that the capital of Belgrade is mainly a corporate destination for the majority of foreign travelers.

The Serbian luxury market would have recovered earlier than mid 2010, but unfortunately, the EU visa waiver will likely result in more Serbians shopping abroad. Like in all other Eastern European countries, the first 6 to 8 months from waiving the visas generates a spree of shopping abroad. The recovery of the Serbian luxury market is made more difficult by the ailing real estate sector and difficult access to bank loans and credits.

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