Understanding the real potential of Poland’s luxury market
A recent study by KPMG on the luxury market in Poland has revealed some interesting findings however it does not provide an accurate picture of the reasons behind the sluggish development of Poland’s luxury market, despite the country’s wealth. KPMG’s study was based on a survey of 250 high earners in Poland as well as income taxation to reflect spending on luxury.
CPP Luxury Industry Management Consultants Ltd, specialized luxury industry consultancy, which has been actively covering Central & Eastern European region, including Poland, for the past 8 years has applied different tools and criteria in its continuous market research. In comparison with the KMPG report, CPP’s analysis is based on sales data provided by international luxury brands with representation in Poland to Polish nationals as well as sales data by Polish nationals at stores in international luxury shopping hubs such as Paris, Milan, London and New York. CPP’s analysis of the consumer profile is focused on lifestyle and spending philosophy rather than income taxation statistics.
In all CPP Luxury Industry Management Consultants Ltd market reports, we have concluded that data from three luxury sectors such as cosmetics & perfumery, hospitality and fine wines & spirits is irrelevant when it comes to understanding the real potential of a luxury emerging market, such as Poland. While these sectors do command large sales volumes, we believe that their wide mass market distribution and democratic pricing policy are not specific to the actual luxury consumer profile. Eliminating the three sectors, we have found the value of the Polish luxury market at 2,1 billion euros in 2010, a third from KMPG’s estimate of 6,3 billion euros. By eliminating the three sectors, we have narrowed the luxury consumer target, being able to focus more specifically on its behaviour and motivation.
In our view, in order to make the consumer profile relevant, we have identified three categories:
A high end consumers – entrepreneurs, business owners, top executives in large conglomerate and holding companies – earning at least 500.000 euros/ year)
B premium middle class – business executives with middle management positions in companies (banking, pharmaceuticals, financial consultancy) – earning at least 100.000 euros / year
C aspirational – all those earning at least 25.000 euros / year
According to our data and calculations, in Poland there are approximately 500 individuals in the A class category, 10.000 individuals in the B class category and 50.000 individuals in the C category. Mention should be made that revenue sources for the A class category consumers are most diverse and not based solely on salary type of income.
KPMG’s study defines as ‘’aspirer’’ the category of Polish consumers earning between 10.500 euros / year and 20.000 euros/year. According to KPMG: ‘’The strength of this group lies primarily in big numbers. According to KPMG estimates, this segment consisted of approx. 1.8 million Poles in 2009, and may increase to 1.9 million this year. The number of aspirers in Poland has grown at a rate of 7% per annum since 2000. Perceptible slumps were recorded only in 2001 and 2007, as a result of shifts in taxation thresholds’’.
We have found relevant KPMG’s finding on the rate of how wealthy Poles have increased their earnings in the recent years: ‘’The number of Poles earning over PLN 7,100 gross a month has nearly doubled in the last 10 years, with their average income growing by nearly a third. According to our estimates for this year, Poland will have approx. 590,000 people earning over PLN 7,100 a month, their average gross monthly income approaching PLN 15,000 (EUR 3.500).’’
As for the luxury consumer profile in Poland, we at CPP have identified that the most important factor which determines lower demand for luxury products and services in Poland is the conservative nature of the Polish consumer, in sharp contrast with the affinity that Serbs, Romanians, Russians or Ukrainians share for luxury branded products and services. Polish consumers are not only more ‘’low key’’ but they also value the quality of the respective luxury branded product rather than the reputation of the luxury branded product, which is the key motivational factor for the other Eastern European nationals whose seek show off and social differentiation.
The conservative nature of the luxury Polish consumer is also reflected in how Polish spend their past times. Oliver Petcu of CPP Luxury Industry Management Consultants Ltd believes that the fact that Polish have a lower key social life, participating less in events such as fashion shows, gala charities, opening or launching events are a key indicator of the lesser need for luxury outfits and implicitly accessories such as watches and jewellery. Sports associated with luxury such as golf and horseback polo are still in their early days in Poland, therefore, are not relevant to highlight the profile of the wealthy Polish consumer.
For those wondering why luxury stores in Budapest or Prague sell more than in Warsaw, CPP’s studies have found that over 60% of the consumer base in Budapest and Prague is represented by foreign travellers who visit the two cities, especially from the U.S. and Asia (China and South Korea). As Warsaw has a very low number of incoming foreign tourists, sales rely on wealthy Polish nationals. But even in this matter, Poland provides an exception – its wealthy consumers being spread around throughout the entire country, in the major cities outside Warsaw, such as Tricity, Cracow, ÅódÅº, WrocÅ‚aw or PoznaÅ„. That is why, although Warsaw is the capital city it is not necessarily a hub for shopping. Most large cities outside Warsaw, have international airports which provide direct connections to major European luxury shopping hubs such as Milan, Paris and London, therefore, these consumer do not need to pass through Warsaw. The only way for a major international luxury brand to have a proper representation in Poland is to have sales outlets not only in the capital city but also in the 5 large cities outside the capital, which, from a business perspective might not be feasible. This geographical spread is therefore a major challenge for luxury brands contemplating a market entry into Poland.
The KPMG study reflects the investment nature of Polish consumers when it comes to buying luxury. ‘’The participants of our study do not see luxury goods only as an aspect of consumption that makes them feel good and enhances their social position. One in three respondents purchases luxury goods with an investment purpose in view. Investments in real estate enjoy the greatest popularity and are declared by nearly 90% of the respondents (under 70% in the lowest income group). Jewellery and works of art also enjoy similar popularity among the most affluent Poles: a fifth of the respondents have made such investments. Jewellery is a somewhat more popular option for those with a lower income. Other forms of investment are less common. Within the category labelled as ”other” the highest proportion was represented by investments in collectible coins.’’
Given the profile of the luxury consumer and the demographics, we, at CPP Luxury Industry Management Consultants Ltd find it obvious that the most developed luxury sectors in Poland are watches/jewellery and travel. Most of the international luxury watches and jewellery brands are present in Poland, in a predominantly multi-brand distribution. Setting up multi-brand boutiques in other cities outside Warsaw has been rather easy given the lower investment costs, in comparison with a mono-brand franchise store. As for luxury travel services, 3 of the largest travel agencies in Poland have dedicated premium / luxury sales divisions, which were also expanded at branches outside Warsaw.
As for the fashion and accessories sector, major international powerhouses such as Dior, Chanel, Prada, Gucci, Ralph Lauren and Louis Vuitton are still absent from the Polish market. The only international luxury brands present in Poland with mono-brand stores in franchising operations are: Emporio Armani, Burberry, Ermenegildo Zegna, Hugo Boss and Escada. The lack of experienced and financially potent local retailers coupled by the challenge of demographics with wealthy consumers spread all around the country, have been the main reasons holding back the development of this sector on the Polish market. A third reason to motivate the sluggish development of the fashion & accessories section is the limited availability and range of products of even the brands which are present on the market. Most of the international luxury brands, present in multi-brand stores have a limited offering, with few collection pieces.