Central & Eastern European luxury markets continue downturn
Political instability has been adding to the prolongued financial crisis in Hungary, Romania, Bulgaria and Ukraine – resulting in a decrease in buying power, drop in direct foreign investments and an even more restrictive access to credit. This has translated into a drop in luxury sales in all the four countries, across all sectors, especially fashion, jewellery, watches and cars. An increase in wealthy nationals shopping at major outlet centres in Italy and Germany has also contributed to the decline of sales in the luxury markets.
In Romania, despite the new openings in 2012 (Roberto Cavalli, Brunello Cucinelli – both mono-brand franchising) the market size has remained stagnant in 2012 compared to 2011, as most of the luxury brands have diminished orders. Louis Vuitton, the star performer of the Romanian luxury market in the past years, has registered the first decline in sales in 2012. Gucci’s store in Bucharest has remained among the worst performing Gucci stores in Central & Eastern Europe despite sustained efforts to organize periodical outlet pop-up’s and private sales. But probably the most affected luxury sector in Romania is watches/jewellery, with most of the existing multi-brand stores diminishing orders and selling by catalogue.
In Hungary, a luxury market highly dependant on foreign travellers, the bankruptcy of national carrier Malev has added to the difficult conditions. This has been evident in the drop in occupancy and rates at luxury hotels in Budapest, most travellers to Budapest are not wealthy consumers of luxury. The most affected luxury sectors remain: fashion, accessories, jewellery and cars. Paradoxically, the luxury watches sector has seen stable results in 2012, partly due to wealthy Serbians, Croatians Montenegrans and Albanians buying luxury times with tax free discount.
Bulgaria‘s luxury market has also stagnated in 2012 compared to 2011, the crack down on corruption driving many wealthy to place their assets abroad. The capital of Sofia and the Black Seaside resorts attract mostly mass market group tourism, therefore, the luxury market being mostly dependant on locals. The political unstable environment has frozen most investments, with a direct impact on foreign investments.
Ukraine, still the biggest luxury market in size among Eastern European countries (except Russia), has been sufferring in 2012 from heavy instability both political and economic. Wealthy Ukraineans, once proudly showing off their luxury purchases locally, are now heading to Dubai and Milan for most of their luxury shopping, the tax free and shopping experience being two key motivating factors.
Czech Republic is Central Europe’s most developed luxury market, with the highest representation of international luxury brands with mono-brand boutiques, most operated directly. The success of the Czech luxury market is also due to the scaling of boutiques, some of them, half the size of those in other major European capital cities. The Czech market also boasts a balance of local HNWI /upper middle class and wealthy foreign travellers. The only factor keeping the Czech luxury market from growth in 2012 has been the currency fluctuations, prices of luxury branded products being up to 15% more expensive in Prague than Milan or Munich.
Serbia, few years ago, considered as the up and coming luxury market of Eastern Europe, has been worst affected by the political and economic instability, especially due to the postponement of E.U. integration. Sales across all luxury sectors, especially fashion, accessories and cars have dropped by at least 20% in 2012 compared to 2011. In 2012, Serbians have been the highest growing nationality among Eastern Europeans shopping at luxury outlet centres in Italy. 2013 is likely to pursue the same negative trend in Serbia’s luxury market, many international luxury brands not present in the country, postponing indefinitely their market entry. Serbia currently has the lowest penetration of luxury brands with mono-brand store among Central & Eastern European countries.
Despite the opening in 2012 of the first luxury shopping centre Wolf Bracka, in the capital of Warsaw with mono-brand stores such as Gucci, Bottega Veneta, Saint Laurent Paris and Lanvin, the Polish luxury market remains under-sized considering the size of population and number of upper class. Although announced for 2012, Louis Vuitton has been postponing its opening in Warsaw. Although Poland has been the least affected Eastern European market from the financial crisis and with a relatively stable political environment, Polish nationals are among the most conservative in Europe, with a low appetite for luxury branded goods (except cars).
An extract of the comprehensive luxury market overview on Central & Eastern Europe by CPP Luxury Industry Management Consultants Ltd.