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Fewer luxury emerging markets with long-term growth potential

According to a survey compiled by CPP-LUXURY.COM in January – April 2013, analyzing the implications, opportunities and challenges directly or indirectly posed by luxury lifestyle, less than 15 international emerging markets provide a long-term growth perspective for luxury brands, accross all sectors: BRAZIL, MEXICO, COLOMBIA, CHILE, RUSSIA (and select CIS countries), TURKEY, ARMENIA, QATAR, KUWAIT, U.A.E., CHINA (mainland), INDONESIA, THAILAND, VIETNAM.

As luxury consumers in emerging markets become more demanding and sophisticated, an increasing international luxury brands from all sectors are finding themselves lacking an understanding of the consumers in those markets. Some even admit that their lust for growth mislead them to over-exposure, opening more and more stores and assuming that consumers in these emerging markets are all driven by show off and the aspiration to replicate Western, mature luxury lifestyle.

In a much smaller geographical area such as Central and Eastern Europe which makes up a fraction of South East Asia, there are fundamental differences in the luxury consumer profile and the motivation to buy luxury branded goods. While in Ukraine, Russia, Serbia and Bulgaria, nationals crave for luxury branded goods, driven by social differentiation and status, in neighbouring Poland, Hungary, Czech Republic, Austria and Slovenia, the wealthy have a much more conservative approach to luxury goods, including how they value a product as being ‘luxury’. A Polish rich would generously buy a ‘fleet’ of ultra-luxury cars for personal use but would not buy luxury branded clothing, accessories or jewellery.

However, most luxury brands did not learn from their mistakes in a much smaller territory such as Eastern Europe, when they started aggressively expanding in Asia. Understanding the luxury consumer is critical for the luxury brands who seek a long term strategy. But beyond the demographics and the wealth, understanding the lifestyle of these consumers is equally important. In many emerging markets, many HNWI do not have a luxury lifestyle, as those in mature markets.

Therefore, when a lady buys an expensive evening gown in Paris or in her country, where would she wear it and how many of her piers would recognize that the respective dress is a luxury one? And its not only about a recognizable pattern or cut, but it is about craftsmanship and quality of the fabrics. Some would say, she could wear the respective dress at a prestige event abroad – but how can she gain access to an exlusive opera performance, an equestrian competition or a couture catwalk show – provided she values such type of events as luxury.

In many of these emerging markets, the rich appreciate as luxury: a launch of the latest whiskey or cigarette brand in a posh night club or the launch of the latest fragrance by a reputed international brand. Theatre, opera or arts exhibitions events attract intellectuals, who are far from being able to afford a luxury branded product – the annual income of an academic or a doctor being a fraction of what the rich make. I have recently come across such a paradox in Russia, where in Moscow, at an exclusive ballet performance at the famous Bolshoi, half of those attending would not even know the title of the play or author, let alone director or set designer.

One week later, while attending a similar event at the Opera in Kazan, a third tier city in Russia, the majority of the attendees would be intellectuals – many of them retired, wearing outfits from their decades old wardrobe. I was accompanied by a friend, a regional executive of a major international luxury brand, to whom I was pointing out – this evening responds to your question whether you should open a store here or not…

I would not argue that there is a segment of HNWI who, by travelling abroad for a long time, have ‘adopted’ or even ‘paid’ their tickets to access Western luxury lifestyle, but these consumer will always shop abroad in the major destinations and they should not be the ones primarily targeted when devising the local marketing communications strategy on a local market. And, in this respect, there are no rules or universal recipes – while a Western celebrity would be venerated when endorsing a luxury brand, in one country – the same celebrity, endorsing the same brand would not have a similar value or effectiveness in another country.

Take for instance, the ‘aggressive’ strategies pompously announced by the international big players of the beauty and fragrances sector when it comes to ‘conquering’ a big market such as China, Brazil or Russia. But just how many of these brands have analysed the recent booming trend of upper middle class and affluent Chinese (men and women) flocking to South Korea for cosmetic surgeries? South Korean clinics now advertise in Chinese and hire doctors and nurses who speak Chinese.

Compared to the Western mentality to postpone drastic plastic surgery procedures as long as possible and utilize alternative, less invasive methods such as Botox, what makes these young Chinese (aged 22 – 50) restort to such immediate solutions. And the mounts they spend are staggering – according to unofficial 2012 figures, Chinese spent over US$ 100 million on plastic surgeries, in South Korea alone. This should be a major warning sign for the major cosmetics players as to what would be the mid and long term approach to communications. Should they spend hundreds of millions of euros on advertising featuring Chinese and Western celebrities or they should rather increase their investments in education and awareness?

According to a survey compiled by CPP-LUXURY.COM in January – April 2013, analyzing the implications, opportunities and challenges directly or indirectly posed by luxury lifestyle, less than 15 international emerging markets provide a long-term growth perspective for luxury brands, accross all sectors: BRAZIL, MEXICO, COLOMBIA, CHILE, RUSSIA (and select CIS countries), TURKEY, ARMENIA, QATAR, KUWAIT, U.A.E., CHINA (mainland), INDONESIA, THAILAND, VIETNAM.

These countries boast a solid and fast growing upper middle class who are not only the critical target segment for long term growth and loyalty but also buy more locally than abroad and luxury brands. Irrespective of global economic conditions, the economies of these countries are likely to continue to grow. Also, in these markets, we have been witnessing the highest growth rate of connoisseur consumers, as they transition from ‘emerging status’.

Oliver Petcu

Max Mara flagship store Jakarta, Indonesia

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