Biggest development challenges for luxury in India, Russia, Argentina and Brazil
Legislation, real estate, taxation, human resources, logistics, counterfeiting and marketing are among the most important challenges faced by luxury brands in major international luxury markets, especially in emerging ones. Despite similarities from one market to another, luxury brands seem not to have learned their lessons and continue to make the same mistakes time and again. Most often, it is a matter of priorities and focus, few international luxury brands being able to demonstrate a coherent strategy worldwide, seizing on the current opportunities and implementing a long term vision.
In their ”quest” for China, some international luxury brands seem to have been overlooking other markets, equally important, on the long term and this is becoming more visible not only in terms of number of store openings but also deployment of top executives and increase in marketing budgets.
Besides the sheer size of a certain market (India and China) and GDP growth rate, how do major international luxury brands evaluate the potential of a certain market? How does a luxury brand decide when and if to enter a particular emerging market? and What is the basis of decision making for luxury brands to switch from wholesale distribution (multi-brand) to mono-brand in an emerging market?
Unfortunately, neither the creation of large corporate structures under groups (LVMH, Richemont and PPR) nor a stock exchange listing (Prada) have encouraged a coherent and feasible, long term business strategy. And this is largely due to the fact that most of the international luxury brands still make their decisions based on a ”lead and follow” and ”gut feeling” strategy. In my 9 years experience, I cannot recall the number of times I heard ”We are not interested in expanding in X country – the market is not ready”. In very few cases, this type of response was actually based on research and thorough evaluation.
Whether the absence of a brand from a major emerging market is motivated by a strategic approach or simply ignorance, or focus on other markets, is difficult to evaluate.
An entire set of challenges also need to be taken into consideration, of which, most, do hinder the development of the luxury markets in the respective countries.
- huge import taxes (over 80%)
- currency fluctuations
- concentration of luxury in Sao Paolo
- high import taxes (over 65%)
- red tape and corruption (customs, logistics, permits etc)
- huge rents especially in the capital city of Moscow
- customer service (lack of experienced HR)
- understanding luxury consumers outside Moscow
- limited involvement of authorities in fighting sales of counterfeited products
- inflation and currency devaluation
- high import taxes
- lack of suitable retail real estate (most luxury brands have street locations, scattered throughout the centre of Buenos Aires)
- red tape and bureaucracy with import proceedures
- high import taxes
- restrictions on foreign direct investment – still a 30% local sourcing clause is being kept in legsialtion
- lack of luxury retail real estate
- poor customer service
- lack of customer experience
- very limited involvement of authorities in fighting sales of counterfeited products
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