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April 16, 2015 at 09:20 PM
Investors looking to cash in on the global luxury market need to keep abreast of the trends affecting consumption by the world’s “spendiest” consumers.
The affluent are still spending on high-end products. But what they buy, how they buy and why they buy are all changing, affecting different sectors within the market, and for a range of reasons. The very factors driving consumption down in one area may also be fueling growth elsewhere, and the old adage “follow the money” may never have been truer—or more apt.
Consumption in the luxury market is changing. Here’s a look at some of the pressures on the luxury goods sector, and how some of them are playing out.
1. Global slowdown in the luxury market.
Sales in the luxury goods sector slowed in 2014, but that’s not necessarily a bad thing. According to a study by Bain & Company, although the sector experienced lower growth in 2014 than in 2013—falling from 7% to 5% “at constant exchange rates”—the new and slower pace of growth is “more sustainable, and reflects the “new normal” for luxury goods, particularly as the global economy continues its sluggish recovery from the financial crisis of 2008.”
Where is growth coming from? Bain said in the report that “[d]emand from Chinese consumers, mature consumers in the U.S., and Japanese shoppers returning to luxury goods have all helped shore up growth.”
2. Tourist spending globally.
Buyers of luxury goods don’t just spend at home. In fact, tourists—Chinese and, before Russia was hit with the triple whammy of sanctions, a collapse in the price of oil and gas and the fall of the ruble, Russian—were some of the biggest spenders on the world stage. But more on China and Russia later; for now, tourism is a major focus for luxury spending.
According to Bain, certain nationalities spend a great deal more than others while traveling. Chinese tourists, for instance, spend more than three times abroad than they do at home. Focusing on specific countries or cities for luxury buyers requires further marketing refinements to account for shoppers’ cultural and personal tendencies.
Another factor to consider is the quest for the luxury travel experience itself. Bain said in research that luxury hospitality is the third largest segment of the global luxury market. Luxury hotel sales were up 9%, it said, while younger people “seeking superior lifestyle experiences” helped to build a 5% increase in the cruise market.
3. Tourist spending, China.
According to Global Blue, which tracks international shopping and spending, Chinese travelers are still the biggest spenders when it comes to tax-free shopping, accounting for 30% of all duty-free shopping—followed by Russians, who rack up another 14%. (The U.S. traveler comes in a distant third, at 4%.) Chinese shoppers’ spending rose from 27% in 2013, while Russians’ spending last year fell from 17% the year before.
In a forecast of luxury trends in China for 2015, public relations firm Ruder Finn and Ipsos Group said that 53% of mainland China consumers shopped at duty-free stores in the past year. “The vast majority of consumers are dissatisfied with luxury retail services in mainland China,” the forecast said, identifying one reason why Chinese tourists may be such marathon shoppers.
