Is Thailand’s Luxury Market Making A Comeback?


Fflur Roberts | June 24, 2015

Despite some political setbacks, Thailand could soon be back on track as Southeast Asia’s largest luxury goods market, explains Fflur Roberts, head of luxury goods at Euromonitor.

Thailand has Southeast Asia’s largest luxury goods market (ahead of Malaysia, Indonesia and the Philippines), with total luxury goods expenditure reaching US$2.5 billion in 2014.

Thanks to low housing costs, Thai consumers enjoyed some of the highest levels of discretionary spending in 2014 as a proportion of total consumer expenditure of all major markets in the region, which helps to fuel luxury spending.

However, while demand for luxury goods in the Thai market remains positive, the market mechanism has slowed down somewhat in the last year due to unfavourable economic conditions, as well as political uncertainty.

“ Thailand’s economy should rebound strongly by the end of 2015 ”

Political Headwinds Hold Back Luxury Sales

For several years, the Thai economy has been held back by the political headwinds created by the frequent changes in government. Thailand had four different prime ministers during 2008, and the uncertainty led foreign companies to put many new projects on hold. Later, a slump in foreign demand for exports – along with severe flooding – added to the economy’s problems.

In 2011, Thailand was first hit by the repercussions of the Japanese earthquake and tsunami, which affected manufacturing output via supply chain disruptions. Shortly afterwards, massive floods brought many operations to a standstill and inflicted costs equivalent to approximately 3% of GDP.

The economy rebounded strongly in 2012 when a programme of reconstruction led to a drop in unemployment, significant gains in private investment and a stronger currency. However, growth slowed again in 2013 as domestic demand weakened and exports contracted. Political gridlock and unrest exacerbated problems in 2014, when real GDP rose by just 0.7%. This was the weakest performance of all ASEAN member states.

Thailand’s economy should rebound strongly by the end of 2015, however. The resumption of private and public investment, better security and a recovery in exports will be the main drivers.

Nevertheless, growth is still below potential. Household consumption is held back by household debt, which exceeds 85% of GDP. Thailand’s labour scarcity could also worsen in the medium term, so to stay competitive, the country must improve the quality of education and develop the skills necessary to move up the value-added chain.

“ Consumers have been wary about shopping in the city’s key luxury destinations ”

Thirty-something Thais Prominent Among The Highest-earning Citizens & A Target For Luxury Spending

Much like other key emerging markets, the 30-34 age bracket comprised the largest share of the Thai population earning an annual gross income of US$150,000+ in 2014, at 20.5%, with the 35-39 group accounting for a further 18.6%. Demographics played a role in this, as a baby boom around the 1970s has led to a population bulge coinciding with Thais in middle age (in 2014, thirty-somethings made up 15.4% of the total population).

Many of these thirty-somethings were educated and entered the workforce after the adoption of the landmark 1997 Constitution of Thailand, which ushered in a period of greater stability and opportunities, boosting their earning power and fuelling luxury spending. At the same time, they are young enough to have adapted to their country’s rapidly changing economy, but old enough to have attained workplace seniority or built up business interests.

The same groups will lead the top annual gross income bracket in 2030, albeit with slightly lower percentages, as population ageing gives older demographics a greater presence in this high-earning group, diluting the shares of younger ones. In 2030, the 30-34 age band will make up 18.0% of the population in receipt of an annual gross income of US$150,000+, with a further 17.3% in the 35-39 grouping.

These high-income households have been a key driver of growth in luxury expenditure, given their high and concentrated spending power. This profile of households has witnessed a shift in consumer spending patterns towards more discretionary spending, supported by a rise in disposable income during the 2009-2014 period and presents significant opportunities for marketers of high-end consumer goods, including those in the luxury segment.

Bangkok city, Thailand

Political Uncertainty Remains A Key Battleground To Luxury Goods Consumption

The political headwinds in Thailand have had a negative impact on domestic consumption as footfall was eroded in Bangkok’s luxury stores. Despite the protests being peaceful, consumers have been wary about shopping in the city’s key luxury destinations as groups of protesters temporarily blocked many central areas of Bangkok, as well as leading luxury department stores and shopping malls. Due to congestion during these protest periods, luxury consumers also found it increasingly difficult to travel to central areas in Bangkok to visit the stores. As a result, many retailers suffered as sales dropped during the first half of 2014.

To make matters worse, many fashion events and launch parties had to be postponed, while new outlets and expansion were delayed. Some affluent consumers, tired of the political situation, travelled to other regional shopping destinations during the Songkran festival (Thai New Year), which is a major shopping event in the luxury calendar.

Sales of luxury goods in Thailand are fuelled by both domestic consumers as well as wealthy tourists (particularly from mainland China). While there was a notable drop in luxury spending by tourists during the protests, the market managed to maintain a positive environment thanks to major efforts by retailers, an increasingly attractive retail landscape in terms of distribution, as well as an increase in spend from the country’s growing aspirational middle class looking for more affordable luxury goods.

However, while these political events somewhat hampered store-based retailing during the first half of 2014, in a strange twist they encouraged online sales of luxury, with the internet and social media becoming an increasingly important communication channel for both retailers and consumers.

Online shopping websites Reebonz Thailand and Club 21 e-SHOP both represent successful examples of such online channels that benefitted during this time. Similarly, newly developed mobile applications were established during this time, which encouraged luxury sales through the m-commerce platform.

“ Thailand is set to become one of the biggest m-commerce markets across Southeast Asia ”

M-commerce Opportunities For Luxury Retailers

Thailand is set to become one of the biggest m-commerce markets across Southeast Asia, with total m-commerce sales expected to reach US$9 million by 2018.

The trend of smartphones started to emerge along with e-commerce thanks to wide adoption by consumers in these two markets. Many operators developed new applications compatible with both iOS and Android in order to make it easier for consumers to get updates on new products. Peer influence via social media applications as well as a greater willingness to accept information through mobile applications has also made Thailand a pilot success for the mobile retail market.

So, huge market potential remains for those luxury goods players that can persuade the remaining smartphone users who are not shopping online to hop onto the bandwagon.

As smartphone penetration rates continue to soar in Thailand and much of Southeast Asia, m-commerce may be the latest explosive sales channel for luxury goods businesses. Future growth will hinge on consumers’ mobile retail experience and the ease of payments offered by retailers.

“ Inbound tourism in Thailand is projected to experience positive growth, despite the political chaos ”

Demand For Luxury Goods To Remain On An Upward Trend

Sales of luxury goods in Thailand are expected to witness a more positive outlook in the short-to-medium term reaching a retail value of US$2.2 billion (fixed 2014 exchange rates) by 2019.

This up-tick in spend will be on the back of improved economic and political conditions, but also owing to greater expansion in luxury outlets and dedicated luxury shopping locations. Central Embassy by Central Retail in Bangkok, for example, has introduced many luxury brands to Thailand with more to follow in the coming years.

Similarly, District-EM by The Mall Group is set to follow suit by introducing new luxury brands to Thailand by 2016.

Much in line with its neighbouring countries, Thailand’s luxury market relies heavily on wealthy tourists from mainland China, Russia and Japan, as well as Malaysia. The future direction of inbound tourism in Thailand is projected to experience positive growth, despite the political chaos that reduced demand during 2013-2014.

ASEAN Economic Community (AEC) integration in 2015 should also act as a key stimulus to international tourists to move across the ASEAN borders more often in the short term. In turn, this should help to further fuel the luxury market.

To further investigate local luxury markets on Luxury Society, we invite your to explore the related materials as follows:

- Another Strong Year For The World’s Largest Luxury Market
- Risky Business in Russia’s Luxury Goods Market
- Spain’s Sovereign Crisis Limits Luxury Goods Spending

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