Who is driving luxury growth and how can luxury brands encourage growth? Madelaine Ollivier, Senior Luxury Analyst at wealth intelligence firm Wealth-X, gives an overview of what’s to come.
With Hermès reporting a 22% increase in second-quarter sales for 2015 and positive results for both LVMH and Kering, it looks like 2015 will put the sparkle back into luxury. This positive growth is aligned with forecasts published in the Departures Global Luxury CEO Survey. The latest edition of the survey showed that Luxury CEOs remain confident, projecting global sales to increase 11% in 2015.
This positivity comes despite much economic uncertainty globally, most prominently in Greece and the ever-important Chinese market. Wealth-X identifies factors behind this growth and highlights countries to watch and why.
“ The desire for luxury goods by Chinese consumers will continue to increase ”
Ongoing political tensions between Mainland China and Hong Kong, the region’s luxury hub, combined with recent turmoil in China’s financial markets, should point towards a slow-down in luxury spending. However, whilst consumer confidence may be shaken in the wake of stock market fluctuations and falling property prices, we remain confident that the desire for luxury goods by Chinese consumers will continue to increase.
According to Global Blue, Paris was the most favoured shopping destination for global tourists in 2014, followed by London. Chinese tax-free spending in Europe was up by 16% in 2014 compared to 2013 (Global Blue). With the high import taxes on luxury goods in China, combined with the weakening euro, now down 9% this year, luxury goods can be up to 60% more expensive than they would be in mainland China.
“ As many as 8.4 million Chinese tourists are predicted to visit South Korea ”
During the first 11 months of 2014, 2.2 million Chinese visitors travelled to Japan, an increase of 82% year-on-year (Japan National Tourism Organization). A total of as many as 8.4 million Chinese tourists are predicted to visit South Korea by (Pacific Asia Travel Association).
The geographic proximity of many Asian destinations over Europe combined with the allure of pop culture, such as soap operas, have made destinations such as South Korea extremely popular with Chinese tourists, providing another boost to the luxury market in the region.
Countries that are able to facilitate the visa process for Chinese nationals such as Singapore and Japan, will see an uptick in visitors.
Chanel, Houston store
Although Chinese consumers remain incredibly important, the United States should not be overlooked. In 2014, 74% of Luxury CEOs cited U.S. growth as having the most positive effect on their business, an increase of 16% from 2013. Chinese growth was cited as being the second most positive factor.
Whilst New York remains a key hub for luxury brands, other key US cities including San Francisco, Dallas, Houston, Atlanta and Washington are being primed for luxury growth. Together, these five cities represent 20% of the UHNW population in the United States (Wealth-X).
Rapid wealth creation, primarily driven by the tech and energy sectors, is driving luxury growth in these cities and many luxury brands are increasing their brand footprint through new flagship stores. At the end of last year, Chanel opened their refurbished larger store in Houston; in Dallas, Jimmy Choo doubled the size of their store whilst Hermès refitted their store to appeal to a growing consumer base.
“ Chinese real estate buyers, for the first time, were responsible for more sales in the US than any other ”
Not only is growth being driven by domestic spending, the US is becoming an increasingly appealing hub for wealthy Chinese individuals who seek not only a “safe” haven for their wealth in property but to provide an American education for their children.
In 2014, Chinese real estate buyers, for the first time, were responsible for more sales in the US than any other non-US group, closing on 16% of the 209,000 homes sold in that period; up from 9% of sales transactions the previous year (National Association of Realtors). The country’s EB-5 visa programme also saw record applicant numbers from China in 2014 (Knight Frank Wealth Report/Fragomen).
“ Combining an element of education around product origins will also further sales ”
The potential exists for luxury brands to capitalise on the increasing outbound flows of Chinese consumers. Shopping in luxury capitals such as Paris and Milan is an experience in itself for many Chinese tourists.
However, combining an element of education around product origins will also further sales; having a story to tell to their peers about the history or craftsmanship involved in a certain product will go a long way in product promotion.
Similarly producing unique products which are only available in certain countries is another way to enhance the exclusivity of a product, demonstrate status and ultimately promote sales.