LONDON, United Kingdom — International market research firm Euromonitor has released the 2014 edition of its annual Passport: Luxury Goods report, containing granular data from 32 countries on nine personal luxury categories, including apparel, accessories and jewellery.
Despite continued macroeconomic uncertainty and sluggish profit reports from major luxury brands, Euromonitor remains optimistic about the industry’s growth prospects. Buoyed by a burgeoning middle class in emerging markets across Latin America, Asia Pacific and Africa, in 2013, luxury goods sales will exceed $318 billion worldwide, representing a year-on-year real value gain of 3 percent (compared to a year-on-year real value gain of over 4 percent last year), according to the report. Spending is projected to increase by more than 35 percent over the next five years.
“One of the most exciting findings is that by 2018, in the next five years, based on our predictions and based on how fast the region is growing, Asia Pacific will be the biggest region in the world for luxury goods,” Fflur Roberts, the head of luxury goods research at Euromonitor, told BoF. “This is predominantly due to China, but also the emerging Asian markets like Malaysia and Indonesia. India is also a major contributor.”
Indeed, according to the study, India was the most dynamic luxury market over the 2008 to 2013 period and is forecast to grow by a further 86 percent in constant value terms over the five years to 2018, followed by China at 72 percent.
Since the start of the firm’s luxury goods research practice back in 2004, Western Europe has been the “clear leader” in luxury consumption and has accounted for more than 33 percent of all luxury spending in the past year. However, with luxury consumption in Asia Pacific expected to grow 170 percent over the next five years, the region is set to dethrone Western Europe as early as 2018.
In 2012, Mexico overtook Brazil to become Latin America's biggest luxury goods market. With a total GDP of $1.2 trillion in 2012, Mexico is the world's fifth-largest emerging economy behind the BRIC countries (Brazil, Russia, India and China) and the second-largest in Latin America. "There is a rising economic confidence across Mexico’s luxury goods industry that will be hard to derail,” said Roberts. “Luxury goods players are looking at Mexico from a completely different standpoint compared to five years ago, with many brands having opened new stores in the last year.”
Growth in Jewellery, Beauty
“As far as [product] categories are concerned, jewellery is set to be the fastest growing. A lot of that is to do with power brands like Louis Vuitton and Versace moving into the ‘hard luxury’ category,” said Roberts.
On the other side of the spectrum, luxury brands are expanding their beauty ranges. Brands like Burberry are buying back their cosmetics licenses from the industry's big players and shoppers are buying into the brands' complete lifestyle offering. "Fragrance has always been a big thing for fashion houses, but this whole thing of cosmetics is something new and something that consumers will aspire to," she added.
Affordable Luxury Gains
“Affordable luxury” brands, like Michael Kors and Coach, have also made gains in both established and emerging markets, according to the report. “Some of it as a result of the market or the economy, but also if you look at other brands like Prada or Louis Vuitton or even Mulberry, that are really inflating their prices, it’s gotten to the stage where lots of consumers simply can’t afford these brands,” said Roberts.
“Rising demand for affordable luxury in developed markets is also linked in part to the industry’s strategic obsession with China,” she added. “Retail prices of many European luxury brands have risen sharply over the past year as part of a deliberate plan to align more closely with China, where heavy import duties push prices up. The rationale is that higher prices in Europe will encourage Chinese consumers to do more of their luxury shopping at home rather than on foreign trips.”
The findings are part of Euromonitor’s Passport series, comprehensive studies across 30 consumer goods industries that comprise historic trends, five-year forecasts and granular data on sales volume, value and the share of sales broken out by brand. The study also takes into account macro-economic indicators and demographic trends.
Its findings differ slightly from the most recent market reports from consultancies Bain & Co. and McKinsey & Co. Euromonitor is more bullish on emerging markets in Africa, where it has extrapolated luxury goods growth rates from other categories such as alcoholic drinks. It counts Nigeria as one of the countries with the fastest-growing demand for champagne.
Roberts attributes other discrepancies, such as Bain’s 4 to 5 percent year-on-year growth versus Euromonitor’s 3 percent, to differences in categories, as Bain’s findings exclude alcoholic drinks, tobacco and luxury electronic gadgets.