Valued at TWD161 billion (US$5.1 billion) in 2015, the luxury goods market in Taiwan ranked 14th out of the 32 countries covered by Euromonitor International’s luxury goods research accounting for just under 2% of the global market.
However, with constant value growth of 41% between in the five years 2015, Taiwan was the sixth fastest growing market behind UAE, South Korea and Indonesia, which notched up a constant value growth of 41%, 48% and 58% respectively over the same period.
“ Taiwan was the sixth fastest growing market behind UAE, South Korea and Indonesia ”
Overview Of The Economy
Taiwan’s economy grew steadily before slipping into recession in 2009. Thanks to Taiwan’s heavily dependence on exports, it was hit harder than neighbouring economies during the Great Recession.
Private investment rose sharply after the recession with substantial increases in manufacturing, information and communications, and construction. The additional investment led to a short-lived rebound and the economy decelerated in 2012 and 2013 when foreign demand weakened again. A moderate rebound took place in 2014, driven by rising consumption, investment and modest gains in exports.
Taiwan has a relatively equitable income distribution but income disparities are worsening. Only the richest one-fifth of all households saw income gains during the last decade, mainly because corporate and investment income grew much faster than wage income – whilst this spells good news for high-end luxury goods, for those brands looking to gain from the middleclass incomes and the more affordable luxury goods navigating the market today can be tricky.
“ The economy will be supported by tourism, a healthy domestic job market and strong wage gains ”
Real GDP is expected to grow by 1.7% in 2015 (down from 3.8% in 2014). Exporters will see a modest decline in 2015 as major markets including China and Europe face significant headwinds. The economy will be supported by tourism, a healthy domestic job market and strong wage gains. GDP grew by a meagre 0.5% in the second quarter of 2015 on an annual basis.
However, the high cost of housing overall significantly limits spending for other purposes such as luxury goods. The ratio of median housing price to median annual household income has risen from about 9 to 16 in 2005-2015.
This makes Taiwan’s housing some of the most unaffordable in the world with the average household in Taipei having to pay two-thirds of its income towards a mortgage – far above the 30% deemed the affordable limit.
National Taiwan Democracy Square, Taipei
Growth of real GDP should reach about 3.5% by 2017 before gradually easing in subsequent years. A rise in private investment and growth in the manufacturing sector will provide most of the support.
The longer term challenge is to remain competitive with Asian rivals as they expand their free trade deals with Taiwan’s key trading partners. A continuing slowdown in China poses major risks.
Taiwan Continues To Move Toward M-Shaped Society Supporting Demand For High-End Luxury
Taiwan is continuing to move towards an “M-shaped society”, with significant polarisation between the affluent and low-income segments. This polarisation sustained luxury goods sales. Wealthy locals are very fond of luxury goods which are clearly used as symbols of status as success.
“ Population ageing & a rise in income inequality will have a profound impact on the country’s consumer spending ”
In addition, due to on-going low birth rates, young adults are also receiving extra care from their families, resulting in a class of young adults with little or no income who still buy premium designer apparel, but mainly focus on accessories such as handbags and belts.
Income and expenditure growths in Taiwan trailed regional averages over the 2009-2014 period, as the country’s export-reliant economy was hit by the global economic downturn. Nevertheless, Taiwan’s sizeable middle class, with relatively high income levels, continues to offer opportunities for luxury goods businesses.
However, over the long term, population ageing and a rise in income inequality will have a profound impact on the country’s consumer spending patterns which could in turn affect luxury sales performance.
“ Taiwan’s economy has returned to growth since 2010, but the pace of growth remains sluggish ”
Taiwan’s per capita annual gross income grew at an average annual rate of 1.8% in real terms between 2009 and 2014 in 2014. This was significantly below the Asia Pacific average real annual growth rate of 4.3% during the same period.
Taiwan’s economy has returned to growth since 2010, but the pace of growth remains sluggish, since weak external demand continues to weigh on the country’s electronics exports.
In 2014, those aged 40-44 were the largest group amongst individuals with an annual gross income of US$150,000+ (ie the top income band), accounting for 22.4% of the total, followed by the age groups 35-39 and 45-49, which represented 18.9% and 18.6% of the highest-income earners respectively. These Taiwanese forty-somethings typically corresponds to experienced professionals, who have made career progression in the country’s business sector.
Taipei’s shopping streets
However, by 2030, the age segment 35-39 will have become the largest amongst the top income earners (accounting for 16.9% of the total), pushing the 40-44 age group into second place on 16.5%. This is because the high-tech backbone of the Taiwanese economy will place a premium on the skills most easily acquired by younger professionals, shifting peak earning power slightly down the age axis.
Meanwhile, Taiwan’s rapidly ageing population will lead to a significant rise of the elderly age segment in the top income band. Those aged 65+ are forecast to account for 13.6% of individuals with an annual gross income of US$150,000+ by 2030, up from 7.3% in 2014.
Luxury brands and retailers will therefore need to pay particular attention to these two age and income group in the long term.
“ Arrivals from China increased at a brisk pace & this group is now by far the largest source of arrivals ”
Growth In China Arrivals Boom To Luxury Industry
Since passing legislation to allow Chinese tourists to visit Taiwan in mid-2008, arrivals from China increased at a brisk pace to the point where this group is by far the largest source of arrivals as well as international shoppers.
The number of cities linked with direct flights between the two countries expanded in a series of steps and reached 47 by mid-2014. Chinese tourists have indeed been a boom to the Taiwanese luxury goods industry. According to Euromonitor International’s latest data almost a quarter of all luxury sales in 2015 came from international tourists.
Many luxury flagship stores and shopping malls are concentrated in Taipei Xinyi Shopping District.
Since 2012, leading luxury brands including Coach, Chanel, Louis Vuitton, Prada, Cartier, and Gucci have been busy opened new stores and expansions in this area to attract the increasing numbers of wealthy Chinese Mainland tourists to Taiwan. The strong purchasing power trend is expected to remain viable in the short to medium term as the Taipei Xinyi shopping district is popular amongst both wealthy local residents and tourists.
“ In an attempt to increase overall footfall, luxury retailers are expected to continue upgrading the shopping experience ”
In an attempt to increase overall footfall, luxury retailers are expected to continue upgrading the shopping experience. Luxury malls and department stores are expected to launch more consumer loyalty programmes or tie ups with credit cards to attract shoppers into the stores as well as launching more VIP events, exclusive launch parties and privilege schemes for its highest spenders.
In the last 12 months Hong Kong has become a hotbed of anti-Beijing political protests. With its glitzy retailers and low prices, it would normally expect around 17 million incoming trips a year from the Chinese mainland.
However, many affluent shoppers are now staying away due to the city’s continuing civil unrest. It is still unclear whether Hong Kong’s loss is another city’s gain. There is however some evidence that Taipei has been seeing more Chinese visitors in the last six months.
The culturally influential 2014 soap opera ‘My Love From The Star’
Japanese Culture & Korea Mania Expands In Asia & Moves Beyond Luxury Products
Taiwanese consumers continue to be strongly influenced by trends originating from Japan and Korea especially in luxury beauty.
Historically, Taiwan has had very strong links with Japan. Segments of Taiwanese society closely follow Japanese trends and very much admire Japanese brands and products. Interest in Korean culture amongst Taiwanese consumers initially began through the success of Korean TV dramas. This Korean wave now influences a wide range of areas.
The influence of Korean dramas and Korean pop has been unprecedented, not just in the luxury industry but also for beauty, apparel, consumer electronics and consumer food services, with items featuring in music videos and TV dramas in high demand among consumers.
“ Product placements in the show from luxury brands such as Cartier, Chanel & Christian Dior have helped boost demand ”
Particularly, 2014’s soap opera ‘My Love From The Star’ has been so influential that the male star of the show, Kim Soo-Hyun, has become the face of Korean beauty brand Beyond (LG Household & Health Care) for women’s skin care.
Furthermore, the so-called chimek trend (a play on the Korean words for fried chicken and beer), which was the favourite snack of the female actress in the show, became an instant success across many key Asian markets.
Product placements in the show including those from luxury brands such as Cartier, Chanel, Goyard, Christian Dior, Paul Smith, DKNY and Céline have helped boost demand for the particular items worn and used by Jun Ji-Hyun(the female protagonist).
“ Tiffany & Co sponsored a TV drama called ‘The Inheritors’, while Jaeger-LeCoultre sponsored ‘The Temptation’ ”
Tiffany & Co sponsored another TV drama called ‘The Inheritors’, while Jaeger-LeCoultre sponsored ‘The Temptation’ in 2014. Both brands saw a surge in demand and google searches for the products featuring in the shows.
Han-ryn (Korean Wave) has also hit Singapore where sales of brands such as Sulwhasoo (6% CAGR globally from 2009-2014) and Yves Saint Laurent were boosted from their placement in Korean dramas. In Taiwan in particular, international brands felt a slowdown as young consumers turned to Korean brands whose availability keeps increasing in all distribution channels for fashion and beauty.
The attraction of Japanese and Korean brands extends beyond younger consumers and encompasses a broad range of Taiwan society. Influence of Korean trends has also been largely responsible for a greater male uptake of luxury beauty products in Taiwan. Manufacturers have been able to use male Korean trends to create and promote a need for Taiwanese males to have their own beauty regime.
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Published on Dec. 17, 2015 under Markets
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