You are on page 1of 61

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

May 2013

INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS

INTRODUCTION

Scope
Values expressed in this report are in US dollar terms, using a fixed exchange rate (2012). 2012 figures are based on part-year estimates. Unless otherwise stated, all data, both historical and forecast, are expressed in constant terms; inflationary effects are discounted.
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised.

Luxury Goods
Designer Apparel Luxury Cigars Luxury Accessories Luxury Jewellery and Timepieces

Fine Wines/Champagne and Spirits


Super Premium Beauty and Personal Care Luxury Travel Goods Luxury Writing Instruments and Stationery Luxury Electronic Gadgets

Despite persistent economic turbulence, mounting troubles in the Eurozone and political instability in several emerging markets, the global luxury goods market remains largely positive. The pursuit of luxury has been sustained, with both absolute and affordable luxury rebounding strongly. With a new world order at stake, highlighted further by the BRIC growth story, luxury brands are using innovative ways to compete in this highly challenging industry.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 3

INTRODUCTION

Objectives
The core objective of this report is to examine the state of the global luxury goods industry in 2012. The report will analyse the impact of the global economic difficulties being faced in the developed markets, especially the Eurozone, teamed with a slowing of growth in the developing markets, and what effect this is having on the performance of specific markets and individual channels. The report will compare and contrast sales performance globally in terms of how different markets and categories are growing or contracting in value terms. The report does not claim to be comprehensive, focusing on key industry categories, but rather seeks to offer high-level insight into key changes in the market at a time of manifest macroeconomic instability.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 4

INTRODUCTION

Key findings
Continued growth in After a significant decline in 2009, the global luxury goods market saw another solid performance in 2012, despite persistent economic turbulence, mounting troubles in 2012 in face of the Eurozone and ongoing political instability in several emerging markets. growing austerity measures Growing number of wealthy consumers across the globe Advanced economies the biggest luxury goods markets The worlds wealthiest consumers are increasing in number. The US, Japan, China, Germany and France were home to some 8.5 million households with an annual disposable income over US$300,000 in 2012. The advanced economies still represent the main source of luxury spend worldwide accounting for almost 73% of total value sales in 2012 . However, their performance although positive is expected to be considerably weaker than that of emerging economies over the next five years.

Emerging economies The BRICs are expected to be key drivers of global luxury goods growth over 2012key drivers of growth 2017, with value sales in these countries increasing at a 12% CAGR. Absolute luxury is the new benchmark Affordable luxury a status stepping stone Luxury and technology fully integrated
Euromonitor International

Absolute luxury was one of the big winners in 2012. High-end fashion house Herms International, for example, had a particularly strong year, with a rise in its 2012 fullyear earnings guidance. Strong investment is still being seen in secondary or diffusion luxury collections, as a means to drive demand in lacklustre markets. The premise remains that consumers can spend less but still feel good about the designer label they purchase. Luxury consumers in developed countries have embraced technology, with social media and online retailing playing an important role for luxury brands in order to engage with their customers, receive valuable feedback and gain loyalty.
LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS PASSPORT 5

INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS

GLOBAL PERFORMANCE

Where is the luxury goods market heading?


Despite persistent economic turbulence, mounting troubles in the Eurozone and ongoing political instability in several of the key emerging markets, the global luxury goods market witnessed another solid performance in 2012. Driven mainly by strength in emerging economies, luxury goods sales exceeded US$302 billion worldwide. This represents a year-on-year real value gain of almost 5% on 2011. Thanks to growing demand amongst the burgeoning middles classes of the BRIC countries, in 2012 luxury consumers the world over spent US$5.8 billion a week on luxury goods. Global Luxury Goods Value Sales and % Growth 2007-2017
400 350 300 US$ billion 250 200 0 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -1 -2 -3 -4 5 4 3 2 1 % growth

US$ billion (constant 2012 rsp)

Year-on-year % growth

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 7

GLOBAL PERFORMANCE

When affordable luxury becomes an unaffordable luxury


Since the global economic crisis hit, leading to a new era of austerity in the developed markets, a number of brands shifted upmarket to promote a more exclusive image, while others moved downmarket to cash in on trends in affordable luxury. Strong investment in secondary and diffusion brands was used as a means to drive demand in lacklustre consumption bases, specifically Western Europe, North America and Japan. The premise was that consumers could spend less but still enjoy the prestige of their purchase. Many luxury brands and retailers have responded to rising demand for affordable luxury. The US brands Michael Kors and Coach are amongst the luxury brands that have successfully met this demand.

On the flip side of this success is iconic British luxury brand Mulberry. In response to pre-tax profits dropping by 36% for the six months to the end of September 2012, Mulberry has repositioned itself as a more upmarket luxury brand. Quality, Made in England, communication, distribution and service are at the forefront of the brands reinforcement, alongside a cull of wholesale accounts where discount activity was rife. The reduction of Mulberrys wholesale footprint has reflected a move away from the so-called affordable luxury which has preciously served the company well. The shift upmarket has, however, squeezed profit margins due to the use of higher quality materials and more sophisticated manufacturing, which will lead to a considerable increase in unit prices in the short to medium term.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 8

GLOBAL PERFORMANCE

Luxury brands to showcase exclusivity


A shift upmarket was especially successful in the absolute or ultimate luxury segment in 2012. For example, high-end fashion house Herms International, which stands for the ultimate in luxury, had a particularly strong year, in contrast to the profit warnings issued by British luxury brands Burberry and Mulberry ,and to the cooling sales reported by leading luxury goods players Gucci (PPR), Louis Vuitton (LVMH), Richemont and Tiffany & Co. The resilience of Herms International is due in large part to its conservative growth model. Unlike some of its competitors, the company has not raced ahead with store openings in emerging Asia. The company has been slower than LVMH, for example, to expand into China but has been rewarded for its cautious approach with strong and stable growth. There are currently only 17 stores in China, with another eight stores set to open over the next 19 years. The companys slow expansion strategy has strengthened the image of Herms International as an absolute luxury brand. In contrast, the ubiquity of other luxury goods brands has weakened their desirability. This aligns with a shift in China towards a more discerning luxury goods consumer base, especially in first tier cities, such as Shanghai. +
US$ million 600

Herms International Net Sales First Half 2011 and First Half 2012

500

400

300

200

100

0 Net sales first half 2011 Net sales first half 2012 France Europe (excluding Japan Asia Pacific (Excl Japan) Americas

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 9

GLOBAL PERFORMANCE

From high exclusivity to high accessibility


Whilst Herms, which operates at the highest end of the spectrum, with its luxury bags like the Kelly or the Birkin selling for several thousand dollars and on long waiting lists, has been able to ride above economic cycles, other luxury players have struggled. Louis Vuittons Speedy, which was once the most sought-after handbag among Chinas HNWIs High Net Worth Individuals (typically defined as people with over US$1 million in liquid assets) lost some of its cachet due to growing retail ubiquity following aggressive brand expansion in China. While the company has never used discounting as a way to drive sales, fearing this might undermine its credibility, it has been among the most aggressive in terms of store openings and marketing. The risk versus the opportunity of retail expansion, especially in China, will be one of the critical strategic challenges for 2013. Gucci also expanded rapidly in China and, while the brand has shifted more upmarket over the past three years, there are signs that the mushrooming visibility of Gucci in interior China has weakened its prestige value in the east, notably in Shanghai and Beijing. Number of Stores in Mainland China, Burberry has faced a similar dilemma, especially in China, and Selected Brands 2008-2012 in response has sought to reduce its presence at lower price points. Brand Name 2008 2012 % growth Louis Vuitton, however, has less room to manoeuvre, having 2008/12 never gone down the route of segmenting its consumer base Herms 12 20 +67% by offering accessible luxury fashion. Spending patterns on luxury goods have become more Louis Vuitton 27 43 +59% cautious among Chinas new middle-income group, and HNWIs in Shanghai and Beijing are rejecting brands that Gucci 25 53 +112% became popular among mid-income groups over the past two years. The likes of Louis Vuitton and Gucci are thus being Burberry 59 68 +15% squeezed on two fronts.
Euromonitor International LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS PASSPORT 10

GLOBAL PERFORMANCE

Luxury brands squeezed from all sides


Decrease in spending on high exposure luxury brands in Chinas tier 1 cities. Consumers look for high exclusivity.

Chinas HNWIs are travelling less and spending less on luxury goods in the West due to a slowdown in economic growth.

Luxury Brands

Increased caution regarding luxury spend within the middle classes of the emerging markets, especially China

Slowdown on luxury spending in the West due to persistent economic turbulence and mounting troubles in the Eurozone

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 11

GLOBAL PERFORMANCE

Flash sales:Buy now or buy never


Prada: Group Net Sales Six Months Ended 31 July 2012
Net sales six months % growth to 31 July on 2011 ( million) Prada was another big winner in 2012. Over the first three quarters of the year, the groups revenues were up by 35%, while net profit climbed by 50%. Most strikingly, Prada reported a 32% revenue increase in Europe, compared to the 28% growth surge in emerging Asia. Prada also notched up growth of 16% in the US and 15% in Japan over the same review period. Pradas results show that the luxury goods growth story is not all about emerging markets. There is no denying that China has become critical to the bottom line of many international luxury brands and manufacturers, but Western Europe continues to present pockets of opportunity, not least from sales fuelled by international tourists, including the Chinese. Prada opened more 60 new stores in 2012, with sales from its standalone stores up 34% compared with wholesale growth of just 6%. Growing retail ubiquity has not appeared to dilute the heritage of this brand. Rather, a strategy of launching new styles and fashions for short periods of time, known as flash sales, has helped create an image of exclusivity. More of this type of selling will be seen in 2013 as brands look to promote an aura of hard-to-get.

Americas
Europe Asia Pacific Italy Japan Other countries
Source: Company Annual Report 2012

224.7
348.7 532.5 259.3 143.9 15.6

30.8%
39.1% 44.7% 21.5% 34.2% 149.8%

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 12

GLOBAL PERFORMANCE

Luxury spend determined by HNWIs


The total global number of HNWIs the main target consumers of luxury goods overall and absolute luxury in particular grew marginally in 2011, by 0.8% to reach 11 million. Asia Pacific overtook North America for the first time in 2011 to become the region with the highest number of HNWIs. This will fuel consumer spending in the region, giving the luxury goods sector a further boost thanks to soaring demand from the region's newly rich consumers. North America, however, remains the largest region for HNWI wealth, at US$11.4 trillion, while Brazil saw the greatest percentage rise overall (6.2%) in the number of HNWIs in 2011. In 2011, more than half of Asia Pacific's HNWIs were still concentrated in Japan. However, countries among the developing economies are gradually eroding this share, with China and India home to growing wealth. HNWI Growth vs Per Capita Spend Growth on Luxury 2010-2011
% growth in per capita spend on luxury 2010-2011 30 25 20 15 -5 10 5 0 -5 India China US Russia Germany Brazil Japan Australia Canada UK -10 -15 -20 10 5 0 % growth in HNWIs 2010-2011

2010-2011 % growth in per capita spend on luxury

2010-2011 % growth in HNWIs

Source: Euromonitor International, World Wealth Reports 2012, Capgemini and Merrill Lynch Wealth Management

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 13

GLOBAL PERFORMANCE

Distribution of global wealth


In 2012, there were significant disparities between the distribution of high and low income earners across the key luxury growth markets. The total global number of Social Class A individuals (whose incomes are over 200% higher than the average gross incomes of all individuals aged 15 and over) globally reached 443.6 million people in 2012. Western Europe, North America and Australasia where wealth is more evenly distributed do not rank high, while Asia Pacific (+70%), Middle East Africa and Latin America are home to the large majority of Social Class A consumers, which bodes well for the luxury market. Already, a significant share of the population in the BRIC economies fall into social class A, having benefited from rapid economic growth. Social Class A Regional Distribution 2012
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 Asia Pacific Latin America 2012 Australasia North America 2020 Eastern Europe Western Europe

Middle East and Africa

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 14

GLOBAL PERFORMANCE

Distribution of wealth in key luxury markets


In China, in 2012, 12% of the population fell into social class A, which is the highest of the BRIC countries and now on a par with the US. Those consumers who fall into social class A in the BRIC countries are generally younger than those in the advanced economies. In India, for example, the highest share of the population in social class A in 2012 was aged between 3034, compared to 50-54 years in the US. Understanding the age make-up of the highest earning consumers provides an additional insight into likely consumer demand for spending on non-essentials, such as luxury goods. Distribution of Social Class in Key Luxury Markets 2012
100% 90% 80% % share of population 70% Social class D 60% 50% 40% 30% 20% Social class B Social class C Social class E

10%
0% China India Russia Brazil US UK Germany France Social class A

Social Class A (million)

60 50 40 30 20 10 0 15-19 Year Olds

Social Class A: World Distribution by Age

20-24 Year Olds

25-29 Year Olds

30-34 Year Olds

35-39 Year Olds

40-44 Year Olds

45-49 Year Olds

50-54 Year Olds

55-59 Year Olds

60-64 Year Olds

65+ Year Olds

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 15

INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS

REGIONAL INSIGHTS

Regional performances in luxury goods


Over the 2007-2012 review period, luxury goods value sales grew in real terms by a 1% CAGR on a global level. India, China, Malaysia and Indonesia were the four fastest growing markets in 2012, whilst the Netherlands and Turkey saw declines in sales. Western Europe, the biggest region in value terms, accounted for 32% of luxury sales in 2012. Economic uncertainty resulted in static sales in Western Europe and decline in North America between 2007 and 2012, with both regions experiencing a CAGR well below the world average. However, North America is set to improve significantly between 2012 and 2017, with a 4% CAGR in constant value terms, while Western Europe is forecast just 2% annual average growth. Asia Pacific reinforced its position as the most dynamic region in the industry, with an overall 2007-2012 growth rate almost twice that of any other region. It was followed by the Middle East and Africa. Luxury Goods Value % CAGR 2007-2012
Western Europe North America Middle East and Africa Latin America Eastern Europe Australasia Asia Pacific -1 0 1 RSP % CAGR 2 3 4 5

World average

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 17

REGIONAL INSIGHTS

Asia Pacific sees healthy growth but faces a slowdown


Asia Pacific saw 7% growth in sales of luxury goods in 2012. This strong performance was led by developing markets like India and China, which experienced strong double-digit growth. The increasing influence of Western culture, a growing number of affluent middle class consumers and the rise in the number of luxury shopping malls and high-end retail outlets have all contributed to Asia Pacifics strong growth in luxury goods. Owing to the European debt crisis and the weak US dollar, luxury goods manufacturers and retailers have continued to move towards Asia Pacific, in particular China, for revenue growth. However, in 2012, cracks started to appear in the form of profit warnings and investor concerns over softer growth. Overall growth in sales of luxury goods in China decreased by two percentage points between 2011 and 2012. Asia Pacific: Luxury Goods % Sales 2012
Japan China South Korea Hong Kong, China Taiwan India Singapore Thailand Indonesia Malaysia Philippines

Asia Pacific: Luxury Goods % growth 2012


India
China Malaysia Indonesia Hong Kong, China Taiwan South Korea Singapore Thailand Philippines Japan 0 5 10 15 20 25

Whilst Japan remains by far the regions largest market in value terms, it was also the slowest growing across the Asia Pacific markets in 2012.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 18

REGIONAL INSIGHTS

Income growth drives luxury in Asia Pacific and Australasia


Rising incomes in Asia Pacific have not only led to higher consumer expenditure but also to changes in consumption patterns. Asian consumers are shifting towards greater discretionary spending. These new spending patterns are creating exciting opportunities for luxury brands and retailers, despite the fact that market potential for some luxury categories is restricted to a small number of wealthy households. Across Asia Pacific and Australasia in 2012, there were around 9.0 million people with an annual gross income of US$150,000+. This figure is expected to grow to 16 million people by 2020. Over the 2013-2020 period, Asia Pacific's per capita annual disposable income is set to rise by 31% in real terms, with per capita consumer expenditure expected to grow by 29%. Key emerging market economies in the region will continue to drive regional luxury spending growth.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 19

REGIONAL INSIGHTS

Age distribution of high earners in Asia Pacific and Australasia


The age structure of the highest income bracket varies from country to country, creating high-end consumer markets with diverse opportunities and challenges for luxury brands and retailers. There is no one-size fits all approach in luxury goods, with, for example, the Generations X and Y tending to demonstrate more brand loyalty characteristics than the younger Generation Z. High-income pensioners in advanced economies such as Australia constitute an attractive market for luxury goods, whilst in developing countries this demand sits among the high earners in their 30s and 40s. Over-65s Dominate Australia
16 14 12 10 8 6 4 2 0 5 0 20 15 8 10 6 4 2 0 30 25

45-49s Dominate China


18 16 14 12

30-39s Dominate Indonesia

10

% of earners of US$150,000+ in 2011 by age distribution

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 20

REGIONAL INSIGHTS

South Africa offers dynamic growth opportunities


The Middle East and Africa was the second most dynamic region in terms of value growth over the 2007-2012 review period, after Asia Pacific, and is predicted to grow by 37% between 2012 and 2017, to reach a value of US$15.2 billion at constant 2012 prices. Whilst Africa is some way behind emerging Asia Pacific and Latin America in terms of the size of its middle class, the combination of rapidly growing economies, youthful demographics, maturing political infrastructure and abundant natural resources present a positive picture for the future of the luxury goods market. South Africa and Nigeria are the regions main emerging markets and, as such, give some insight into regional luxury goods demand. Nigeria was one of the fastest growing markets in the world for champagne between 2007 and 2012, with a volume CAGR of 19%. Total consumption reached 840,000 bottles (75cl) in 2012, placing Nigeria among the top 25 champagne markets in the world. South Africa was one of the worlds strongest growth markets in super premium beauty and personal care over the period 2007-2012 with retail spending showing a CAGR of 10%.
% Value Growth

South Africa: Households with an Annual Disposable Income Over US$300,000


80 Households (000) 60 40 20 0 2007 2012 2020

Luxury Goods Value Growth % y-o-y 2007-2012


12 10 8 6 4 2 0 -2 -4 -6 2007-08 2008-09 2009-10 2010-11 2011-12 UAE

Middle East and Africa

South Africa

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 21

REGIONAL INSIGHTS

Lucrative Latin America on impressive growth trajectory


Latin America: Luxury Goods Value Growth 2007/12
16 14 12 10 8 6 4 2

0
-2 -4

2007-08 2008-09 2009-10 2010-11 2011-12


Latin America Brazil Argentina Mexico

Latin America is the fourth biggest region in luxury goods and has enjoyed double digit growth in the past five years contributing just over 9% of the total incremental value to luxury between 2007 and 2012. Brazil and Mexico together are responsible for almost half of Latin America luxury goods value sales. However, Argentina was by far the most dynamic market, growing by a 51% in real terms over 2007-2012. This impressive trajectory is likely to continue in the short to medium term, in light of the fact that the US$125,000150,000 annual income band is projected to post the fastest growth of 98% over the 2013-2020 period, boosting the luxury industry. Nevertheless, luxury brands still face many challenges in the lucrative Latin America market, such as high import duties, political instability, new import substitution policies and high inflation.

Latin America: Luxury Goods Value Sales 2007/12


18 16 14 12 10 8 6 4 2 0 2007 2012 Brazil Mexico Argentina Other Countries

Value growth %

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

US$ Billion

PASSPORT 22

REGIONAL INSIGHTS

Eastern Europe offers opportunities for luxury despite high savings


Eastern European markets were not immune to the downturn, but consumer confidence ran high among an expanding middle class. Nevertheless, Eastern Europes savings ratio rose from 7% of disposable income in 2007 to 12% in 2012, as consumers worried about the uncertainty of the future. There are, however, substantial differences between countries, indicating the uneven levels of incomes, spending powers and attitudes towards saving. There is evidence that Polish consumers, for example, spend when threatened with crisis, rather than save, which has spelled good news for luxury brands. In Russia, rising consumer spending has been good news overall for the Russian economy; however, the Russian market is highly polarised between rich and poor, and along regional lines. The luxury goods market in the capital Moscow, for example, bears more resemblance to Western metropolises than to other cities and regions in Russia, where the middle class has limited purchasing power. Eastern Europe is, nevertheless, identified as an important global growth engine for luxury over the next five years, generating a projected US$3.4 billion of actual growth, and accounting for 5% of worldwide forecast incremental value. Saving Ratio % of Disposable Income 2007/2012

Romania

2012 2007

United Kingdom

Poland

Russia

Ukraine

-20

-10

0 % Savings Ratio

10

20

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 23

REGIONAL INSIGHTS

Poland spearheads Eastern European opportunity


Luxury goods sales in Russia were almost 10 times the value of sales in second ranked Poland in 2012 and accounted for 67% of total regional luxury sales. Poland has seen the fastest economic growth of any EU country since 2008, flouting contagion from the global financial crisis and the Eurozone debt turmoil. Bullish economic growth reflects strong consumer demand in luxury goods. While being one of the smallest luxury markets in the world, economic growth, an increase in middle class consumers and expansion in luxury brands presence helped Ukraine's luxury market grow by 9% in real terms between 2007 and 2012. Prior to the global financial crisis of 2008-2009, Romanian consumers were spending more on luxury than they were earning, in response to positive sentiment following the 2007 EU accession and easy access to consumer credit. In 2006, the savings ratio was at -16.3% of disposable income. However, the worsening financial outlook has made consumers more cautious and has resulted in a slowdown in luxury value growth.
US$ Billion 10 9 15

Eastern Europe Luxury Goods Value Sales US$ Billion and % Growth 2007/2012
20

8
7 6 5 4 5 % Value Growth 10

0
3 2 -5 1 0 Russia 2007 Poland 2012 Ukraine Romania -10

2007/12 % growth

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 24

REGIONAL INSIGHTS

North America bounces back


One of the most interesting growth stories in luxury goods in 2012 came from North America. As consumer confidence returned temporarily in 2011, an increase in consumer spending was observed, especially on non-discretionary items such as luxury goods. The region grew above the world average in 2011, at 8%, and just below world average in 2012, at 4%, following a decline during the downturn. Led by luxury goods giant the US, which in 2012 accounted for 93% of regional sales, North America is still home to the world's largest pile of investable wealth. While Asia Pacific overtook North America for the first time to become home to the world's largest group of HNWIs in 2011, the total wealth of North American HNWIs reached US$11.4 trillion, remaining higher than the Asia Pacific HNWI group which had total assets of US$10.7 trillion.
Euromonitor International

Luxury Goods North America Value and Growth 2007-2012


90 10 8 85 6 4 80 US$ billion 2 75 0 -2 70 -4

-6
65 -8 60 2007 2008 2009 2010 2011 2012 -10

North America World % Value Growth 2007/12 North America % Value Growth 2007/12

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 25

% Value Growth 2007/12

REGIONAL INSIGHTS

Western Europe remains largest region but continues to struggle


The Eurozone crisis provides the largest risk to global luxury goods growth, with a number of economies expected to contract further in the short to medium term. Spain and the Netherlands were among the worst performing luxury markets globally during the review period, a clear reflection of consumer belt-tightening across discretionary sectors. Italy, Germany and France showed comparative resilience, due in large measure to cash rich tourists shopping for luxury but also supported by increased penetration of affordable luxury goods and diffusion brands.

2007-2017 Luxury Goods Retail Growth Constant value % High-growth Mid-growth Low-growth

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 26

REGIONAL INSIGHTS

Advanced economies continue to dominate luxury spend


The advanced economies still dominate in terms of actual spend on luxury goods, with consumers in the US spending twice the amount of second placed Japan. However, China is ranked fifth in the list of spending and is catching up rapidly with European countries such as Italy and France. Whilst emerging markets such as India and China are throwing invaluable lifelines of growth to the luxury goods industry at a time of sluggish Western demand, the future behaviour of consumers in established luxury goods markets will continue to have a significant impact on the global luxury landscape. Top Five Markets: Value Sales 2012 Leading Countries for Luxury Goods Spend in 2012 Country
USA Japan Italy France China ROW

Spend % share of total (US$ million) global spend 76,913 31,657 21,179 19,365 17,938 14,378 12,403 8,769 7,280 6,271 25.5 10.5 7.0 6.4 5.9 4.8 4.1 2.9 2.4 2.1

USA Japan Italy France China United Kingdom Germany Russia Spain South Korea

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 27

REGIONAL INSIGHTS

US remains the worlds largest luxury market


The US remains the worlds largest luxury goods market, accounting for over a quarter of overall value sales of luxury goods in 2012. Japan ranks second after the US, but sales of luxury goods declined by 11% in real terms over the five years to 2012. This equates to a massive US$3.7 billion reduction on 2007 levels. The UK luxury goods industry is also under fierce pressure, as inflation climbs and wages freeze. The middle class, in particular, has become squeezed, and is trading down rather than up. Harrods is the best performing luxury goods retailer, with sales underpinned by wealthy Chinese and Russian tourists. The four biggest luxury goods markets the US, Japan, Italy and France together accounted for almost half of value sales in 2012. Luxury Goods Top 10 Value Markets 2007/2012

2012

2007

0% USA

10% Japan

20% Italy

30% France China

40%

50%

60% Germany

70% Russia

80% Spain

90% South Korea

100% ROW

United Kingdom

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 28

REGIONAL INSIGHTS

Emerging markets set to continue driving growth


Whilst the majority of spend will continue to come from the developed markets, the real growth potential lies in the emerging markets. Luxury spend in these countries experienced a real terms increase of 42% between 2007 and 2012, compared to just 1% in the developed markets. Continued urbanisation, economic development and the overall love of luxury within these markets has continued to bring a large proportion of consumers into the mainstream luxury market. Luxury Goods Value Growth Developed vs Emerging Markets 2007-2017
25

20

15 % value growth 2007-2017

10

However, diversity amongst spending patterns still exists within the emerging markets, as these economies are at very different stages of development.

-5

Forecast
-10

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Developed

World

Emerging

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 29

REGIONAL INSIGHTS

The winners and losers


India was by far the most dynamic luxury market over the 2007-2012 period. The country's real GDP grew by 4% in 2012, and is predicted to grow by 6% in 2013. Overtaking the UK in 2011, China became the fifth largest market in the worlds luxury rankings. Whilst China only accounts for 6% of global luxury consumption, it is a share which is expected to grow. China's economy grew by 8% in 2012, and is predicted to grow by another 8% in 2013. Whilst 2010 and 2011, presented Argentinas luxury goods market with significant opportunities, and indeed higher growth rates, due to the undervalued currency in relative terms and the boom of international tourism, the governments dollar clamp and import substitution policies will mean luxury goods will struggle to survive under these challenging conditions. Japan and Spain were the worst performing markets in the world, thanks to decades of weak economic growth in Japan, and deepening problems in the Eurozone affecting Spain.
WINNERS

Top 10 Growth Markets 2007-12


India China Hong Kong, China South Korea Argentina Malaysia Indonesia Taiwan Brazil Singapore 279% 129% 71% 51% 51% 49% 45% 41% 22% 22%

Bottom 10 Growth Markets 2007-12


Romania Sweden USA UK Canada Turkey Canada Russia Japan Spain 3% -2% -2% -3% -5% -5% -5% -6% -11% -15%

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

LOSERS

PASSPORT 30

INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS

CATEGORY INSIGHTS

Movers and shakers


Designer apparel remains the worlds largest luxury goods category, accounting for just under 44% of total luxury revenue in 2012. The second largest category, luxury jewellery and timepieces, has seen a radical shake-up, as leading manufacturers of soft luxury goods, such as clothing and footwear, diversify into hard luxury to capitalise on untapped opportunities. Whilst products positioned at top tier price points are continuing to show insulation from economic turbulence, sales in this category have benefited further, owing to the perception that hard luxury goods, such as luxury timepieces and high-end jewellery, typically retain value over time and are, in effect, regarded as a safe haven for luxury goods consumers. Following luxury electronic gadgets, super premium beauty and personal care has continued to gain ground as the second fastest growing category, especially in the emerging markets, as disposable incomes grow and consumers trade up. Luxury Goods Sales and Growth by Product Category 2012
140 US$ billion 2012 120 100 80 60 40 20 50 40 30 20 10 0 -10 % Value Growth 2007-2012 DA = Designer Apparel; LJT = Luxury Jewellery and Timepieces; LAC= Luxury Accessories; SPBPC = Super Premium Beauty and Personal Care FWCS = Fine Wine, Champagne and Spirits; LCIG= Luxury Cigars; LTG = Luxury Travel Goods; LWS = Luxury Writing Instruments and Stationary; LEG= Luxury Electronic Gadgets;

0
DA LJT LAC SPBPC FWCS LCIG LTG LWS LEG

-20

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 32

CATEGORY INSIGHTS

Designer apparel
Designer apparel accounts for almost half luxury Valued at US$132 billion in 2012, the global market for designer apparel was by far the largest luxury goods category accounting, for 44% of total luxury sales. Led by China, this category is expected to retain its lead, increasing by 20% in value terms to reach US$158 billion by 2017. Whilst much of this this growth is owed to geographical expansion, one of the critical strategic challenges of the years ahead will be the risk versus the opportunity of retail expansion. Increased consumer base Affordable designer apparel has democratised what was once the exclusive terrain of HNWIs, creating a vastly enlarged potential consumer base. At the same time, affordable luxury has built new consumer corridors, connecting fast fashion, mass brands and luxury brands. Designer apparel remains aspirational as a concept, but thanks to affordable luxury it is now more accessible too.
Euromonitor International

Growth of diffusion brands Designer apparel positioned at accessible price points, teamed with retail expansion, has been a key industry battleground, and increasingly the core revenue drivers of some of the worlds fastest growing luxury goods players. There has been stronger investment in secondary or diffusion designer labels as a means to drive demand in lacklustre consumption bases, reflecting a shift in middle income shopping culture in austerity hit developed markets. Price platforms and brand heritage 2012 witnessed some designer apparel brands shifting upmarket to promote a more exclusive image, while others moved downmarket to cash in on trends in affordable luxury. Fuelling the strategic conundrums were issues of wholesale footprint, retail expansion and the extent to which brand ubiquity and discount activity threaten prestige heritage.

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 33

CATEGORY INSIGHTS

The rise and rise of Chinas designer apparel market


The rise of Chinas emerging consumer market is well publicised, but the speed of the transformation is astounding. In percentage value terms, Chinas designer apparel category was the fastest growing in the world, increasing by 112% between 2007 and 2012, and in absolute terms China added US$2.6 billion to the overall category, out of a global total of US$3 billion. This impressive growth trajectory is expected to continue, and by 2017 China is forecast to account for just under 6% of total global sales, up from 2% in 2007. Designer Apparel Sales 2007-2017
160 25

140

20

120 Retail value (US$ billion) 15 100 % growth 10

80
5 60 0 40 -5

There are numerous drivers of this growth, but most important is the rising number of middle class consumers who can spend beyond the immediate needs of food and utilities. It is these consumers who are purchasing higher value products and driving overall consumption.

20

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

-10

China

Emerging

Developed

World growth

China growth

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 34

CATEGORY INSIGHTS

Time for designer apparel to man-up


Designer menswear has shown stronger growth than women's designer apparel with sales expanding by 3% in real terms between 2007 and 2012. On the back of this, many designer apparel brands, such as Zegna, Burberry and Mulberry, have adopted strategies to promote their mens tailoring and bespoke service, with further expansion planned for 2013. Whilst growth in luxury menswear has been dominated by the emerging markets in Asia-Pacific, growth in this category has also picked up in developed markets. In 2012, sales of mens designer clothing were up by 10% in the US, for example. Burberry reacted proactively to the trend, opening its first dedicated menswear outlet in Londons Knightsbridge in 2012. Womenswear, however, remains the largest category in designer apparel, while childrenswear growth has been driven by Asia Pacific sales. Designer Clothing and Footwear % Value 2012 2007 Growth 2007-2012
US$40 billion US$41 billion
6

% value growth

+3% growth
2007 US$73 billion 2012 US$74 billion

4 2 0 -2

-4
-6 -8 2007-08 2008-09 2009-10 Men 2010-11 Women 2011-12 Total Children

+2% growth

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 35

CATEGORY INSIGHTS

Luxury jewellery and timepieces a safe haven for consumers


Whilst designer apparel is forecast to remain the world's largest luxury category, the fastest growth between 2012 and 2017 is predicted to come from luxury jewellery and timepieces. This category is projected to grow by 39% over the five year period, to account for 20% of total luxury goods sales. Interestingly products positioned at top tier price points have shown great insulation from economic turbulence. Luxury jewellery and timepieces in particular have benefited further due to the perception that hard luxury typically retains value over time and is regarded as a safe haven for consumers. Luxury Jewellery and Timepieces Sales 2007/2012/2017
50 45 40 35 US$ billion 30 25 20 15 10 5

0
2007 Luxury Jewellery 2012 2017 Luxury Timepieces

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 36

CATEGORY INSIGHTS

Soft luxury specialists build new hard luxury positions


2012 witnessed leading manufacturers of soft (fashion-driven) luxury goods diversifying into hard luxury to capitalise on untapped opportunities. This will increase competition for more traditional heritage brands, and ought to boost the overall size of the hard luxury segment. Hard luxury is particularly attractive for soft luxury specialists because of its untapped market potential. Unlike designer apparel and luxury accessories, the fine jewellery category is dominated globally by traditional jewellers, which are typically unbranded. By the same token, hard luxury has not segmented into different price tiers in the same way as soft luxury. China, the worlds biggest growth market for luxury goods, has a consumer base that is highly receptive to fashion branding. Indeed, whereas more traditional luxury goods consumers in Western Europe might be put off by fine jewellery that is manufactured by an apparel fashion house or a handbag maker, the new generation of luxury goods consumers in China and right across the emerging markets tend to be more fashion brand-focused in their purchasing patterns. With the likes of Versace and Louis Vuitton rolling out hard luxury products at accessible, premium and ultra premium price points, the hard luxury market is set for a potentially radical shake-up. The shift into investment protection purchasing at the top end of luxury goods will become more pronounced in Western Europe if the Eurozone debt crisis deepens.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 37

CATEGORY INSIGHTS

The new age haute joaillerie brands

Louis Vuitton

Versace

In July 2012, Louis Vuitton (LVMH), the worlds biggest luxury goods company renowned for its handbags and designer dresses opened its first dedicated haute joaillerie boutique in Paris's Place Vendme. The company reported a 46% increase in revenue growth within its jewellery and watches between 2011 and the launch in 2012.

In summer 2012, Versace launched a high-end jewellery collection, and plans to open a dedicated standalone fine jewellery stores in the short to medium term. Similarly, Bottega Veneta, Herms, Dolce & Gabbana and Ralph Lauren have all moved into high-end jewellery in the past few years, following the lead of Gucci, Chanel and Dior.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 38

CATEGORY INSIGHTS

Who buys what?


Aside from China and India, where luxury jewellery and timepieces is the leading category, designer apparel is ranked number one across all emerging and developed markets. However, there are marked differences in the product selections of luxury consumers in emerging and developed markets from rankings two to nine. Luxury Categories by Ranking: Key Luxury Markets 2012
1 Luxury Category Rankings by Spend 2 3 4 5 6 7 8 9 China Hong Kong India Russia Brazil USA France Italy Switzerland UK

Designer Apparel (Ready-to-Wear) Luxury Electronic Gadgets Luxury Cigars

Fine Wines/Champagne and Spirits Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery

Luxury Accessories Luxury Travel Goods Super Premium Beauty and Personal Care

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 39

CATEGORY INSIGHTS

Luxury beauty grows rapidly


With value sales growing by 14% in the five years to 2012, super premium beauty and personal care category was the second fastest growing category after luxury electronic gadgets. Despite the harsh economic climate in the West and a slowdown in the East, consumers continued to spend on luxury beauty products, with strong growth performances in Asia Pacific, the Middle East and Africa and Latin America owing in part to the comparatively affordable price points. Much like the rest of the luxury goods industry, while the emerging markets of India, Brazil, China and Argentina are throwing lifelines of growth to the luxury beauty category, the advanced economies still dominate in terms of actual value, with consumers in Japan, the US, France, Italy and the UK together accounting for 64% of total spend in 2012. Super premium skin care was the largest overall category in 2012, accounting for almost 40% of global luxury beauty sales. 64% of sales came from Asia Pacific alone. Super premium fragrances was, however, the dominant category across all regions, with the only notable exception being Asia-Pacific. Luxury Beauty and Personal Care: Top Five Categories 2012
14 Middle East and Africa 12 Australasia Latin America Eastern Europe 10 Value sales (US$ billion) North America Western Europe 8 Asia Pacific

Luxury Luxury Skin Care Fragrances

Luxury Luxury Luxury Sun Colour Haircare Care Cosmetics

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 40

CATEGORY INSIGHTS

An insight into category breakdown


All categories grew over the 2007-2012 period, with the exception of luxury cigars, luxury travel goods and luxury writing instruments. The decline in luxury cigars was partly due to a decline in smoking prevalence across the world, owing to smoking bans in public areas and increased health awareness. Luxury accessories and super premium beauty witnessed the greatest increase in market share, owing in part to their appeal as affordable luxury products due to their more favourable price points, and also due to an increase in diffusion brands, limited editions and product accessibility. This was, however, at the expense of designer apparel, the share of which fell from 45% of total sales in 2007 to 44% in 2017. Nevertheless, designer apparel continues to be the leading luxury category.
Euromonitor International

Luxury Goods Sales by Product Category 2007-2012


100% Luxury Electronic Gadgets 90% Luxury Writing Instruments and Stationery 80% Retail Value RSP US$ billion Luxury Travel Goods 70% 60% 50% 40% 30% 20% Luxury Jewellery and Timepieces 10% Designer Apparel 0% 2007 2008 2009 2010 2011 2012 Luxury Cigars

Fine Wines/Champagne and Spirits

Super Premium Beauty and Personal Care

Luxury Accessories

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 41

INTRODUCTION GLOBAL PERFORMANCE REGIONAL INSIGHTS CATEGORY INSIGHTS ROUTE TO MARKET FUTURE OUTLOOK AND RECOMENDATIONS

ROUTE TO MARKET

Key trends in luxury retail


Retail innovation was a key theme in 2012, with some brands prioritising store premiumisation over unit expansion. The objective is to re-energise the prestige appeal of luxury brands amongst the words wealthiest consumers.

Retail Innovation

Pop-up Stores and Flash Sales

Initially seen in fashion flash sales, the pop-up concept is expanding to most key consumer categories, including luxury goods. While the original purpose was to create an immediate buzz around a luxury brand or product line, new developments are trying to merge the pop-up within the high-end department store and standalone store concepts.
With exclusivity being a key theme in the latest success stories, luxury brands have become increasingly aware of the risk versus the opportunity of retail expansion, especially in China. While many luxury retailers have expanded rapidly in China, there are now signs that the mushrooming visibility has weakened the prestige value of such brands, which have lost some of their cachet due to growing retail ubiquity. Much of the growth in the developed markets will be driven by mainland Chinese and Russians, who are frequent visitors to luxury hotspots and consider them mainstay shopping destinations. Prices for luxury goods in mainland China and Russia are often 30-50% higher than in Europe and Hong Kong, due to high levels of consumption tax. Luxury goods retailers faced multiple challenges from e-commerce in 2012. Whilst digital technology has been a means to attract a wider consumer base, there is the risk of cannibalising bricks-and-mortar sales, encouraging discount activity and fuelling online counterfeits. But, the internet and the mobile internet is the fastest growing channel of retailing.

Retail Expansion

International Shoppers

Luxury Sales On-line

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 43

ROUTE TO MARKET

Luxury brands upping the ante with retail innovation


Burberrys new flagship store on Londons Regent Street raised the bar on how to fuse bricks-and-mortar retailing with digital technology. Following the tightening of its supply and logistics chain, as well as investing heavily in its own retail network, Burberry plans a 12-14% increase in average retail selling space, opening 15 mainline stores in 2013. Thus far, the company is on track to achieve this goal. Most of its focus will be on larger format stores biased towards the emerging markets, and flagship stores in high tourist inflow city markets.

Burberry will use its new Regent Street store as a template for future stores, and is likely to be copied by other retailers.
Aside from its digital sophistication, by wholly integrating brick & mortar with its online platform, the store promotes a more egalitarian retail environment than is normally associated with luxury stores. The come and hang out ethos of Burberrys new store echoes the highly successful retail model of the latest luxury shopping mall developments.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 44

ROUTE TO MARKET

Luxury pop-up stores


In recent years, pop-up (or guerrilla) stores have proved a major hit in the US and Western Europe, springing up overnight like pieces of trendy urban graffiti. The concept has been especially popular with clothing brands. The basic premise of pop-up retail is short term, with an outlet staying open for anything from one day to one year. Historically, there has been negligible spending on interior design, with rents remaining low. The concept was more about creating a buzz rather than generating sales. It was also a way for clothing brands to engage directly with consumers and test the water for a more long-term retail commitment. Fast forward almost 10 years and luxury brands are now using pop-up stores to display the ever-increasing number of designer and artistic collaborations housed in the worlds most luxurious retail stores. Gucci opened a pop-up store in Londons trendy Covent Garden in 2010 to celebrate the launch of its trainer range, with Mark Ronson, and in August 2012, luxury goods giant Louis Vuitton opened seven pop-up stores around the world to celebrate the launch of its much-publicised collaboration with the Japanese Artist Yayoi Kusama. Most recently, House of Dior moved into the worlds most famous department store, Harrods, with a pop-up shop of limited editions, an exhibition of couture and a caf full of pretty coloured delicate dainties. Parts of Western Europe and the US have become the tipping point of a new uber-luxury pop-up consumption culture.

Louis Vuitton and Yayoi Kusama Pop-up, Paris Summer 2012

Gucci Pop-up Store, London Spring 2010

House of Dior at Harrods Spring 2013

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 45

ROUTE TO MARKET

Image matters when it comes to China


Louis Vuitton Maison Shanghai, China Herms Shang Xia, Shanghai, China

To strengthen its image in Asia, Louis Vuitton opened its first China Maison in Shanghai in 2012. This super luxury store has invitation-only floors and sells ultra-high-end one-offs and a Made to Order service, which is only offered in Sydney, London, Tokyo, Milan and Shanghai. Louis Vuitton hopes that the store will reenergise the prestige appeal of the brand amongst Chinas wealthiest consumers. Creating ever more luxurious retail locations remains a priority. For example, The Island, located at Singapores Marina Bay, is a floating store intended to recall the days of cruise ship travel.

No stranger to retail innovation, Herms has made some tentative steps towards building a multi-brand strategy in the Chinese market. Shang Xia stores were created by the company in 2010, but are run as independent operations selling Chinainspired luxury clothing, jewellery and furniture. In 2012, the company opened its second Shang Xia store in Beijing, and plans to expand the brand to the European market, with its first store opening in Paris in 2013. This two-year gap shows that the companys emphasis is on building value slowly.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 46

ROUTE TO MARKET

Why are Chinese travellers shopping for luxury?


Availability Despite the growing number of luxury brands entering the Chinese market, many luxury labels are still not available. Whilst accessibility is improving, this issue is exacerbated in second and third tier cities, which have limited access to flagship stores and boutiques opened by luxury brands in first tier cities. The limited supply and availability of luxury goods in large parts of China has driven Chinese travellers to purchase luxury items from outside China. High end department stores in major tourist and business destinations such as London and New York have been the primary beneficiaries of this trend.
Euromonitor International

Price Another consideration for Chinese travellers is price. Many international luxury brands choose to price their products higher in China than they ordinarily would in their countries of origin. This helps to create a feeling of exclusivity, which is particularly appealing in the worlds most populous nation. Furthermore, luxury items are subject to higher sales taxes, making these products even more expensive. Consequently, luxury items sold abroad are often cheaper in comparison to Chinese retail prices. This is a major driver of duty-free sales.

Status Many Chinese consumers, including many more affluent individuals, have yet to travel beyond China. Given that even Hong Kong and Macao require visas for Chinese citizens, international travel is restricted. The minority who do travel abroad are therefore held in high regard because of the wealth and status attached to foreign travel. The ability to show off by purchasing luxury items or products exclusive to international outlets is an additional benefit for Chinese travellers purchasing luxury products abroad.

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 47

ROUTE TO MARKET

China's travelling consumers also boost luxury sales abroad


Whilst it is evident that China is one of the worlds fastest growing luxury markets in the world, the Chinese consumer is not just spending on luxury at home.

Average Inbound Spend US$ per Arrival 2011 5,000+ 3,000-4,000 2,000-3,000 1,000-2,000 500-1,000 0- 500
Figures: China 2011 inbound spend per arrival US$ fixed ex rate

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 48

ROUTE TO MARKET

Luxurys route to market


Non-grocery retailers, such as apparel specialists and high-end department stores, have remained prominent. In 2012, non-grocery accounted for over 80% of the entire retail distribution of luxury goods in value terms. The rise of non-store retailing has, however, started to have an impact on store-based sales, with store-based retailers share of distribution declining by 1.4 percentage points since 2004. Luxury Goods: The Changing Routes to Market 2008/2012
Japan UK Value Sales (US$ billion, current rsp) 250 Germany South Korea USA 200 France Switzerland 150 Italy Sweden Netherlands

300

Developed Markets: The Role of Non-store Retailing in Luxury Goods 2012

100

Australia Singapore Canada Taiwan

50

Spain
0 2008 Grocery Non-grocery 2012 Non-store Hong Kong 0 2 4

Developed Markets Average

10

12

% of luxury sales through non-store retailing

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 49

ROUTE TO MARKET

Luxury and the online challenge


Globally, non-store sales of luxury goods reached a value of US$20.5 billion in 2012: 6% of total sales, compared with 5% in 2008. Internet sales in North America and Western Europe are clearly more developed, and global retailers have historically focused on these regions when launching their internet presence, thus the availability of luxury goods via the web is a key factor determining growth. However, luxury goods retailers continue to have an uneasy relationship with e-commerce, where on the one hand there is the attraction of reaching a wider consumer base, while on the other, there is the risk of cannibalising sales in bricks-and-mortar stores and encouraging online counterfeit activity. The physical experience of a luxury store remains a key component of luxury retailing, which is why some of the worlds most famous luxury retailers in London, Paris and New York continue to be heavily dependent on the footfall of HNWIs from the BRIC markets and other developing countries. Luxury Goods: Store-based vs Non-store Retailing % Share 2012
100% 80% 60% 40% 20% 0% Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa Non-store North America Western Europe World % value share

Store-based

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 50

ROUTE TO MARKET

Affordable luxury finds its niche in online sales


Despite retailer concerns over launching a transactional platform, internet and mobile internet sales are the fastest growing retail channel, thanks to the impressive global sales of smartphones and tablet computers. Which are having a major impact on the way consumers shop. Furthermore, the emerging middle class is becoming increasingly internet savvy and, while mobile internet usage in markets such as China and Brazil has lagged behind advanced economies, the latest generation of tablets and smartphones is ushering in a new internet culture, with potentially far-reaching implications for the distribution of luxury goods. Luxury goods retailers will have to find ways of accessing the power of the internet in 2013, but digital strategies will need to be more innovative than in non-luxury goods sectors. Where e-commerce has a more sustainable future is in affordable luxury within designer apparel, luxury accessories and luxury beauty products. As such, the growth of online activity for these luxury goods is in line with one of the key strategic trends for 2012, that is the demand for affordable luxury products and the increase in diffusion or secondary brands. Luxury Goods: Global Internet Sales by Category 2004/2014
2012

2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Designer Apparel Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery

Super Premium Beauty and Personal Care Fine Wines/Champagne and Spirits Luxury Cigars

Luxury Accessories Luxury Travel Goods Luxury Electronic Gadgets

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 51

ROUTE TO MARKET

The pros and cons of luxury internet retailing

The Pros

The Cons

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 52

INTRODUCTION

GLOBAL PERFORMANCE
REGIONAL INSIGHTS CATEGORY INSIGHTS

ROUTE TO MARKET
FUTURE OUTLOOK AND RECOMMENDATIONS

FUTURE OUTLOOK AND RECOMMENDATIONS

Emerging markets thrive, Western Europe outlook mixed


The global luxury goods market is predicted to expand by a 5% CAGR in constant value terms between 2012 and 2017, reaching US$376 billion at constant 2012. While all of the regions are expected to see positive growth, sales in Japan, the Netherlands, Italy and the UK will continue to be pulled down by the ongoing economic turmoil, with Western Europe expected to show the slowest growth over the forecast period, with a CAGR of 2%. Strong demand for luxury goods in India, China, Malaysia and Indonesia means that Asia-Pacific will continue to lead in growth registering a robust CAGR of 7% in the five years to 2017. This impressive trajectory means that Asia-Pacific is likely to be on a par with Western Europe, accounting for 28% of total luxury sales by 2017. Luxury Goods Forecast Sales 2012-2017
400

350

Australasia

300

Middle East and Africa Eastern Europe

250 US$ billion

200

Latin America

150

Asia Pacific

100

North America

50

Western Europe

0 2012 2013 2014 2015 2016 2017

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 54

FUTURE OUTLOOK AND RECOMMENDATIONS

The BRICs will continue to be the force behind global growth


The BRICs will continue to yield the most significant global growth for luxury goods over 2012-2017, pulling further ahead of second-tier emerging markets. Continued high prices in Switzerland, combined with the strength of the Swiss franc against the euro, will encourage cross-border luxury shopping in Germany, France and Italy. As a result, luxury sales are forecast to show limited growth over the forecast period. While Italy's debt crisis will continue to have a negative bearing on local luxury purchasing patterns, outbound spending from wealthy tourists will help to bolster sales. Spain is forecast to be more resilient over the forecast period, due in large part to luxury spend from high net worth tourists from China. Despite being the fastest growing EU economy in 2012, luxury spending in Poland is forecast to be sluggish, reflecting a decline in consumer confidence. Following an impressive trajectory during the review period, sales in Argentina will struggle at the hands of import barriers, currency controls and soaring inflation. Japan will continue to decline. Luxury Sales Ranking by Absolute Growth 2012-2017 Rank of 32 Absolute growth researched Market (2012-2017) countries US$ million USA 18,195 1 2 3 4 5 6 7 8 9 10 11 18 21 25 26 32 China India Russia France South Korea Hong Kong Brazil Italy Mexico Spain United Kingdom Switzerland Poland Argentina Japan 17,691 4,139 2,546 2,370 2,285 2.230 1,627 1,522 1,502 1,494 1,022 280 281 217 -502

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 55

FUTURE OUTLOOK AND RECOMMENDATIONS

Forecast categories
Whilst designer apparel is forecast to remain the world's largest luxury category, accounting for 42% of total luxury revenue in 2017 and expected to show the greatest growth in absolute terms, the fortunes of global luxury goods will rest mainly on the performance of the industry's fastest growth category luxury jewellery and timepieces. This category is projected to grow by more than 38% between 2012 and 2017, to reach a value of US$76 billion, at constant 2012 prices, and will make up 20% of global luxury spend. Luxury Goods Forecast Sales and Growth by Product Category 2012-2017
160 US$ billion 2017 140 120 100 80 60 40 20 0 2017 sales % growth 40 35 30 25 20 15 10 5 0 % Value Growth 2007-2012 180 45

Designer apparel Luxury jewellery and timepieces Luxury accessories

Fine wine champagne and spirits Super premium beauty and personal care Luxury writing instruments and stationery

Luxury electronic gadgets Luxury travel goods Luxury Cigars

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 56

FUTURE OUTLOOK AND RECOMMENDATIONS

What will we be buying?


Fine wine, champagne and spirits is forecast to be the biggest game changer in the product selection by 2017, where in France and Brazil it is set to surpass luxury accessories to become the second and third largest category, respectively, and in the US it is set to surpass super premium beauty and personal care. Luxury cigars are forecast to move down the scale in India and France, losing share to super premium beauty and personal care and luxury electronic gadgets. Luxury Categories by Ranking: Key Luxury Markets 2017
Luxury Category Rankings by Spend 1 2 3 4 5 6 7 8 9 China Hong Kong India Russia Brazil USA France Italy Switzerland UK

Designer Apparel (Ready-to-Wear) Luxury Electronic Gadgets Luxury Cigars

Fine Wines/Champagne and Spirits Luxury Jewellery and Timepieces Luxury Writing Instruments and Stationery

Luxury Accessories Luxury Travel Goods Super Premium Beauty and Personal Care

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 57

FUTURE OUTLOOK AND RECOMMENDATIONS

Summary of the main findings


Emerging markets are expected to gain further in luxury spend. This is highlighted by the expectation that China will be the second largest luxury market by 2017. However, brands must not become complacent regarding the BRIC growth story, and need to keep a balance between the developed, emerging and indeed the next frontier luxury markets. Whilst affordable luxury will still have its place, the so-called absolute luxury segment will prevail as consumers become more sophisticated and discriminating, prompting brands to up the ante to appear more exclusive.

New world order expected

The challenge of being a true luxury brand

The luxury industry is still very young and evolving within the emerging and frontier markets, and will experience significant growth in the short to medium term. Major shifts within consumer preferences, sophistication and consumer types are highly likely. Luxury brands will need to be prepared for the next big thing in order to compete successfully

Luxury does not stand still

Retail innovation

. Gone are the days when a luxury label was a guarantee of success. As consumers shift into a more . discerning gear, luxury retailers must be one step ahead of the game, whether that be through fusing bricksand-mortar retailing with digital technology, the use of pop-up stores and flash-sales or by creating uber luxury super stores.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 58

REPORT DEFINITIONS

Luxury goods definitions


Designer Apparel: This is the aggregation of designer clothing, designer clothing accessories and designer footwear. Fine Wines/Champagne and Spirits: This is the aggregation of fine wine and luxury spirits. Also referred to as Luxury Alcohol and Luxury Alcoholic Drinks. Luxury Accessories: This is the aggregation of men's luxury accessories, women's luxury accessories and luxury eyewear. Luxury Electronic Gadgets: This is the aggregation of luxury mobile phones and luxury MP3 players. Luxury Jewellery and Timepieces: This is the aggregation of women's luxury jewellery, womens luxury timepieces, mens luxury jewellery and mens luxury timepieces. Luxury Cigars: This is the aggregation of luxury handmade cigars and luxury speciality cigarettes. Luxury Travel Goods: This is the aggregation of luxury trolley cases, luxury travel bags, luxury beauty cases, luxury suiters and luxury shopping trolleys. Luxury Writing Instruments and Stationery: This is the aggregation of luxury pens, luxury pencils, luxury stationery, luxury pencil cases and luxury diaries. Super Premium Beauty and Personal Care: This is the aggregation of super-premium fragrances, skin care and hair care.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 59

REPORT DEFINITIONS

Report definitions and abbreviations


BRIC: An acronym that refers to the fast-growing developing economies of Brazil, Russia, India and China. Emerging countries: In the Luxury system: China, India, Indonesia, Malaysia, Philippines, Thailand, Poland, Romania, Russia, Ukraine, Argentina, Brazil, Mexico, South Africa, United Arab Emirates, Turkey Developed countries: In the Luxury System: Hong Kong, Japan, Singapore, South Korea, Taiwan, Australia, Canada, USA, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, United Kingdom CAGR: Compound annual growth rate. HNWI: High Net Worth Individual: definition varies but generally refers to a person with US$1 million or more in investible assets. Values derived from the Luxury goods system are expressed in constant US dollar terms, using a fixed exchange rate (2012). Values derived from the Alcoholic Drinks system are expressed in constant US dollar terms, using a fixed exchange rate (2011). Unless otherwise stated, all data are expressed in constant terms; inflationary effects are discounted.

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS

PASSPORT 60

Experience more...
This research from Euromonitor International is part of a global strategic intelligence system that offers a complete picture of the commercial environment. Also available from Euromonitor International: Global Briefings Timely, relevant insight published every month on the state of the market, emerging trends and pressing industry issues. Interactive Statistical Database Complete market analysis at a level of detail beyond any other source. Market sizes, market shares, distribution channels and forecasts. Strategy Briefings Executive debate on the global trends changing the consumer markets of the future. Global Company Profiles The competitive positioning and strategic direction of leading companies including uniquely sector-specific sales and share data. Country Market Insight Reports The key drivers influencing the industry in each country; comprehensive coverage of supply-side and demand trends and how they shape future outlook. Learn More To find out more about Euromonitor International's complete range of business intelligence on industries, countries and consumers please visit www.euromonitor.com or contact your local Euromonitor International office: Bangalore +91 80 4904 0500 Cape Town +27 21 552 0037 Chicago +1 (312) 922 1115 Dubai +971 4 372 4363 London +44 (0) 207 251 8024 Santiago +56 2 2 9157200 So Paulo +55 11 2970 2150 Shanghai +86 21 603 21088 Singapore +65 6429 0590 Sydney +61 2 9581 9200 Tokyo +81 3 3436 2100 Vilnius +370 5 243 1577
PASSPORT 61

Euromonitor International

LUXURY GOODS: GLOBAL TRENDS AND PROSPECTS