Factors including increased investments in emerging markets and ecommerce are the prominent factors that are expected to propel luxury goods spend 6-9 percent each year until the middle of the decade, according to findings from a study from Bain & Co.
With the emerging markets expected to become more important in terms of luxury spending as the years go on, China alone takes up 20 percent of luxury spend while Asian market luxury spend is at 50 percent. In addition, thanks to global retail and ecommerce capabilities, the United States, emerging markets and Europe will also push global luxury spending to approximately $254 billion in 2012 alone.
“The study is mainly a confirmation that the luxury goods market has strong fundamentals for growth, even if it is not happening the same way across all geographies,” said Claudia D’Arpizio, Milan-based partner at Bain & Co. and lead author of the study. “There is a bit of a dichotomy in markets where there is strong momentum and where local consumption is flattened or declining.
“Other emerging markets for luxury goods are BRICs,” she said. “China is by far the most important market but Brazil is becoming interesting and India, after many years of speculation and limited growth, has started to open its stores and becoming very relevant.
"Ecommerce and mobile is playing a big role in mature markets, but will become a huge way to penetrate emerging markets and younger consumers in the future."
Bain’s Luxury Goods Worldwide Market Study analyzes 230 of the world’s leading luxury goods companies and brands. It was first published in 2000.
Growing, growing, gone
Luxury has become a truly global market, according to Bain.
Chinese consumers, including their spending as tourists, account for 20 percent of global luxury sales, while the whole of the Asian market accounts for 50 percent.
Marc Jacobs' site for Japanese consumers
In addition, the average age of Asian luxury consumers is steadily decreasing, where the average age of affluent consumers in Japan, Europe and the U.S. increased.
This mix creates a new generation of luxury consumers that has varying tastes and preferences, according to the study.
Furthermore, 30 percent of global luxury sales now occur in emerging markets including India, Russia, Azerbaijan, Brazil, Indonesia, Kazakhstan, Malaysia, Mexico, South Africa, Turkey and Vietnam.
Ralph Lauren's site for Russian consumers
As well, 2012 growth can be attributed to 2-4 percent in Europe, 5-7 percent in the U.S. and 2 percent in Japan.
Therefore, multichannel global campaigns must reach further than ever, according to the study.
Commerce conflicts
This could be a main reason why luxury brands are reaching out to global markets via ecommerce and mobile to ensure maximum reach from these crucial consumers.
"Luxury brands cannot build up a huge market in China, in particular, because it is too big for a physical presence, so the Internet will play a key role in penetrating Mainland China in the future," Ms. D'Arpizio said. "Another reason is because a lot of wealthy Chinese prefer to pay in cash, and that makes the online channel a limitation.
"However, online will continue to be relevant in the U.S. and Europe and will be a major source of revenue in emerging markets in the near future," she said.
Along with a change in spending throughout different markets, the way that consumers are spending is also differing as time goes on, per the study.
For example, women are increasingly buying more traditional male purchases such as watches and business attire.
Meanwhile, men are more likely to seek traditionally-female brand dimensions around fashion and beauty in addition to product functionality.
Another key finding was that luxury product usage is more casual, which is probably why brands have been creating casual-chic lines.
What has not changed is consumers’ desire for high quality and greater craftsmanship. These factors are what really constitute luxury in their minds.
“All digital initiatives will become a key tool to attract and retain the attention of the younger generation,” Ms. D’Arpizio said. “Brands also must create the right awareness to their particular brand, including the emphasis on history and brand DNA.
“The real challenge ahead is being able to appeal to the new generations,” she said. “Since they will become a huge part of the population buying goods in the future, becoming relevant for them in terms of value proposition and a status symbol will be important to growing in the long run.”
Final Take
Rachel Lamb, associate reporter on Luxury Daily, New York