Innovation, targetting and heritage can save luxury brands
Irrespective of the geographical region, the past decade has proven that luxury brands worldwide rely on emerging market consumers more than they do on the consumers in the mature markets. Whether the actual sale takes place in an emerging market or abroad, it is Chinese, Russian, Argentinian, Turkish or Serbian nationals who account for most of the luxury brands sales be it fashion and accessories or watches and jewelry.
The motivational factor of the show off which results in social differetiation is the one which drives the nouveau riche consumers to purchase the most well known brands and the ”easiest to recognize” designs. That is why, to many, even luxury professionals, the luxury markets in emerging economies seem alike. This is not the case, at least not any more ! Even if cast as ”Asian” markets, Vietnam, China or Korea boast three very different luxury consumer profiles. While in certain Chinese provinces, locals seek to ”copy” their friends and social counterparts, the ones residing in major cities such as Shanghai and Beijing are looking at the price of the luxury goods they buy as the main factor which sets them apart, therefore, aiming to buy the most expensive product of a certain line, especially when it comes to acccessories such as bags or shoes. For instance, a brand such as Salvatore Ferragamo which has 31 shops in 21 cities in China, in Korea it has more than 21 shops only in the capital city of Korea, reaching a total of 33 shops throughout South Korea. This very high ratio penetration in South Korea clearly indicates not only the attractiveness of the brand for South Koreans but also the luxury retail maturity of the market.
The same differences can be found in the emerging luxury markets of Central and Eastern where CPP Luxury Industry Management Consultants Ltd have identified three geographical poles: the ”anglo saxon” countries of Czech Republic and Hungary, with the capital cities of Prague and Budapest where luxury brands rely on more than 80% on foreign travellers; the ”Russian prone” markets of Bulgaria, Romania, Serbia and Ukraine where more than 70% of luxury goods and services sales are made to locals and the rest of the percentage being divided among foreign and regional travellers, mostly corporate. This very important ”division” by geographical area has only been understood as early as 3 to 5 years ago by many top international luxury brands which have rushed into opening DOS (Directly Operated Stores) in Prague and Budapest, overlooking the much larger potential of Bucharest and Belgrade. Louis Vuitton’s presence in Romania is a testimony to this overcautious expansion strategy. In a store which is less than 200 sqm within one of the most unfortunate luxury retail locations in the Romanian capital within the JW Marriott Hotel gallery has been registering record sales in 2009, reaching over EUR 3,1 million turnover, in comparison with Budapest, where a store twice the size of the one in Bucharest made less than EUR 2 million in 2009.
The full analysis will be available on March 17th on this section of the website, together with all other follow up materials presented at BUSINESS OF LUXURY FORUM 2010 edition (16th March, Bucharest/Romania)