Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > ETFs > Broad Market

7 Pressures and Effects on Global Luxury Market

Your article was successfully shared with the contacts you provided.

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. Page2

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. Page5

4. Tourist spending, Russia.

Russia’s conspicuous consumers are hurting. That’s hit luxury markets at home—where the luxury market was worth $6.8 billion in 2013, according to Euromonitor—and abroad. Russians have stopped buying while traveling, and travel itself is down. The United Nations World Tourism Organization said that spending on Russian international travel dropped 6% last year, after recording growth in previous years above 20%.

Russians have abandoned boutiques in Milan, and their favorite designer brands are revising growth figures downward. Hotels in Turkey and Egypt, both favored Russian destinations, have cut room rates, and Egypt has even waived travel fees for Russians. Airlines are cutting flights.

There was a boost in luxury goods sales in Russia toward the end of 2014—from cars to jewelry—before retailers marked up prices to accommodate the ruble’s fall. But Global Blue said Russian tourist spending in December alone fell 44%. January was even worse, with spending down 51%. Page6

5. China: economic slowdown and anti-corruption crackdown.

With China’s growing affluent population being the largest consumer group of luxury goods globally, China’s economic slowdown has certainly hit businesses where it hurts. The “tiger and flies” anti-corruption program is also taking a toll, although it is spurring growth in different ways. Chinese shoppers, still eager to indulge themselves, are abandoning famous luxury brands to try less conspicuous options, spurring growth for new luxury companies.

Still, that’s little consolation for such businesses as the organizers and participants in the Europe Asian Watch, Jewelry and Antique Coins Show, which was scheduled to be held in Macau in May. The show was canceled, said organizers, because of the anti-corruption crackdown. Why? Public officials of any kind are being forbidden to enter Macau’s casinos. Since the show was to be held at a casino, that has, according to a statement posted by event manager Vincci Tung, affected the show’s “VIP customers admission”.


6. Brazilian luxury shoppers abroad.

Brazil is the third-largest contributor to global luxury consumption. Although it’s felt the pressure of a slowing economy, as have so many countries, there’s still plenty of potential for growth in luxury spending.

That’s because 80% of Brazil’s luxury goods spending is done outside the country, according to Massimo Mazza, a principal at McKinsey & Co. Mazza said in a report that high Brazilian taxes—the highest among the BRICS nations—spur Brazilians to do most of their high-end shopping while traveling, although he added that 30% of Brazilians also feel that they get a better selection overseas. Page8

7. Brazilians shop at home, too.

When Brazilians do buy at home, they may do so literally—since one of the expected ways businesses cater to Brazilian luxury shoppers is with in-home private showings, product demonstrations and even launches. When customers come to them, companies win in-country luxury purchases by providing ancillary services in addition to whatever it is they’re selling.

This can include everything from valet parking and exclusive client events to free home trials, customized products and designs and the ability to pay for a purchase in installments—even by “people … [who] don’t need to, but because they can.” High-end Brazilian consumers rely on making expensive purchases, said Mazza in the report, while “allowing their money to stay invested and earn more money.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.