Spain’s economic troubles, brought on by the impact of the global economic downturn of 2008-2009 and the eurozone sovereign debt crisis, have severely limited growth in income and expenditure on luxury goods over the 2009-2014 period.
As austerity continues to grip the nation, albeit at a slightly lower level than in recent years, the luxury market is set to see low levels of consumer demand, although opportunities are apparent in the more accessible or affordable luxury goods segment.
The Spanish luxury goods market recorded positive growth in 2014 for the first time since the downturn posting a real value gain of 0.7% on 2013 to reach €5.4 billion making them the world’s 11th biggest market ahead of Canada and Switzerland.
This slight improvement to the markets performance has been supported to some degree by the modest recovery in the Spanish economy, as well as the growing number of millionaires in the country and spend from wealthy tourists
“ The Spanish luxury goods market recorded positive growth in 2014 ”
Spain, the fourth largest economy in the euro zone, grew steadily for ten consecutive years prior to the recession in 2009. During this period of prolonged growth, the Spanish economy generated more than half of all new jobs in the euro zone.
However, the economy deteriorated rapidly when the country’s housing bubble collapsed and a large fiscal debt was accumulated.
Spain’s economy will however grow modestly in 2014 after several years of contraction. Real GDP is expected to grow by 1.0% in 2014.Strong growth in exports, investment and a better performance in the tourist sector provide support.
Businesses and households, however, are still struggling to reduce their debt. The prospects for consumer spending are improving. Nearly a quarter of the work force is unemployed and two-thirds of the jobless have been out of work for more than a year.
“ Spain’s economy will grow modestly in 2014 after several years of contraction ”
Private final consumption (in real terms) fell by 2.1% in 2013 and growth of 0.5% is expected in 2014. However, the prospects for consumer spending are improving. Business investment is picking up while fiscal incentives for the automobile industry introduced in late 2013 will provide additional support.
Consumer spending should also receive a boost as employment prospects improve and pent-up demand gains strength.
Spain’s labour pool is shrinking. Population has fallen for the last three years, largely due to an exodus of Latin Americans and Africans who had come for work during a long building boom. In 2013, the number of foreigners living in Spain dropped by more than 500,000. Without this emigration, the jobless rate would have been higher.
Villa Florenta, Marbella, Spain
Spain’s aging population is increasingly shaping the performance of the luxury goods industry with the importance of baby boomers as a target for luxury players continuing to grow. A growing number of companies are focusing on launching luxury ranges and products to target this segment.
In Spain, people aged 65+ make up the largest age group in the population with an annual gross income of US$150,000+, and yet their share in the top income bracket is expected to rise even further in the period through to 2030.
This long-term trend will shape consumption in many sectors, and businesses that understand this will be able to develop suitable products and devise appropriate investment strategies in order to capture the full market potential that this growing and influential consumer group has to offer.
Luxury goods business and investment strategies aimed at Spain’s top-earning elderly people can be devised for the long term, as the share of the 65+ cohort among the top income bracket will continue to rise.
Euromonitor International forecast that by 2030, this demographic will make up 17% of all Spanish earning an annual gross income of US$150,000 and above.
“ Spain’s aging population will shape the future performance of the luxury goods industry ”
Much in line with what it has been happening over the review period the Spanish luxury goods market is still dominated by international players. Chanel, Dior, Hermes and Louis Vuitton are amongst the most coveted luxury brands in the country. Meanwhile the importance of domestic luxury players is low with only a limited number of brands, such as Loewe, widely known by the average Spanish consumer.
Meanwhile the importance of international brands continues to grow in the Spanish market, seduced by the growing number of wealthy tourists arriving in Spain’s biggest, cities, especially Barcelona and Madrid but also at luxury holiday destinations such as Marbella and Ibiza.
We have seen a growing number of international brands opening or refurbishing outlets in the country such as Louis Vuitton, Armani, Roberto Cavalli, Coach and Stella McCartney over the review period.
However, in an attempt to promote and consolidate Spanish luxury goods and it heritage two trade associations have been setup, namely Círculo Fortuny and Luxury Spain. Both associations have seen impressive rises in their membership numbers since their formation.
“ In an attempt to promote Spanish luxury goods two trade associations have been launched ”
Spain’s recovery will be a slow one. Real rates of GDP growth will range between 1.4% and 2.0% in the medium term. There is still a need to unwind accumulated imbalances and the tight financial conditions facing the Spanish economy. The potential rate of growth is also declining. Exports will probably be the main driver but domestic demand should also strengthen gradually.
There is consensus amongst the industry is that the conservative attitude towards spending will continue to be a defining feature for the Spanish luxury market in the short to medium term. In fact Spanish consumers are not expected to go back to the consumer confidence levels seen prior to the economic downturn for many years to come.
As a consequence, the polarisation of sales will continue to take place. The gap between those with a high and a low disposable income is expected is wet to widen emphasising the polarisation of sales seen over the review period and a growing need for affordable and absolute luxury price points.
The growing number of wealthy visitors to the country teamed with and increasing number of millionaires will be the key drivers of luxury sales growth in the short to medium term.
To further investigate local luxury markets on Luxury Society, we invite your to explore the related materials as follows:
- 5 Must-Know Insights Into The French Luxury Market
- What Is Really Happening in China’s Luxury Market?
- Turkey: A Robust Economy Ripe For Luxury Growth