A rising tide raises all boats. We’ve all heard the old adage before. Yet somehow the intensity and global gloom of this last recession had many of us doubting that it would ring true this time, that the regular tidal patterns would ever return.
It may come as a surprise, then, that one of the categories that has bounced back significantly in 2010 is luxury goods.
The tide has risen for this sector in general and global luxury sales are projected to grow by 10 percent this year (via The Financial Times). LVMH, Swatch, Richemont (owner of Cartier, Montblanc and Hermes) and Burberry are a few of the “boats” enjoying the rising tide. Each of these companies has performed better-than-expected in 2010 and their shares have risen sharply.
Big brands are the biggest benefiters from this trend, according to consultant Bain, because they were able to respond to the global financial crisis by opening new stores and continuing to invest. Globalization has been the key to many of these brands’ success.
Though the U.S. has definitely seen growth in luxury goods sales this year (around 12%, according to FT), Asia harbors the brightest potential for the industry in 2010 and 2011. According to forecasts by Bain earlier this year, China was likely to finish 2010 with a 15% increase in year-to-year revenue growth; as this year draws to a close, estimates are more along the lines of 30%, and China is poised to become the world’s third largest luxury market in five years’ time (FT).
One of the categories that most clearly reflects trends in the wealthiest Chinese’s spending habits is fine wine. China has recently become a paradise market for suppliers of cachet wines. Despite a very bleak global economy in 2009, China imported more than 10 million cases of still wine and fine wine sales were up 50% (via FT). Today, Hong Kong auctions are eclipsing London’s in importance. Live-Ex 100 Fine Wine Index, which serves as a benchmark for wine prices in the global marketplace and tracks the movements in value of the world’s top 100 wines, (mainly Bordeaux), has shown China’s influence on the pricing of these top-tier wines. Predictably, the index fell sharply in 2008, but has risen steadily since the beginning of 2009. The new rich in China are back in the fine wine business and spending like never before.
Latin America is another emerging market that offers growth potential for luxury goods makers. In addition to Asia, this is one of the emerging markets that Burberry is targeting. The group plans to open 20 to 30 wholly-owned stores this year; one was recently opened in Brasilia, Brazil with another four projected to open soon.
These trends seem baffling when one considers that the average incomes in these emerging markets are lower than those in the United States or Europe. Seeking Alpha explains that the upper middle class and wealthy consume “a disproportionate amount of the world’s luxury goods and services.” The future is promising in these markets where consumers are investing in status symbols and ostentatious signs of their prosperity. And the base of luxury good consumers continues to swell.
So whether you are in the business of cosmetics, watches, fine wine or leather handbags, or any other quality good for that matter, if you have yet to establish a presence in these emerging markets, the sales figures should motivate you to do so. Though the competition has certainly grown fierce, especially in certain categories such as cosmetics, the consumer base is growing, and an early foothold in these countries will enable you to gain market share.
Talk to your localization partner about how to market your luxury products and services to Asia and Latin America…and join the rising tide.