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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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...The 14th edition of the Bain Luxury Study, published by Bain & Company for Fondazione Altagamma, the trade association of Italian luxury-goods manufacturers, analyzed recent developments in the global luxury- goods industry.

The overall luxury industry tracked by Bain & Company comprises 10 segments, led by luxury cars, luxury hospitality and personal luxury goods, which together account for 80% of the total market. The industry surpassed '1 trillion in retail sales value in 2015 and delivered healthy growth of 5% year over year (at constant exchange rates), driven primarily by luxury cars (8%), luxury hospitality (7%) and 'ne arts (6%).

Aided by global currency fluctuations and continued purchases by 'borderless consumers,' the personal luxury goods market'the 'core of the core' of luxury and the focus of the Bain Luxury Study'ballooned to more than '250 billion in 2015. That represents 13% growth over 2014 at current exchange rates, while real growth (at constant exchange rates) has eased to only 1% to 2%. The slowdown confirms a shift to a 'new normal' of lower sales growth in the personal luxury goods market. The challenge for luxury brands in this environment is to successfully navigate market volatility driven by currency swings and fluctuating tourist flows.

Currency swings affect regional performance

Boosted by a strong US dollar, the Americas emerged as the biggest global region for personal luxury goods purchases. However, in real terms, the US market did not deliver. The 'super-dollar' was too expensive for many global tourists and, although local consumption grew, it was barely sufficient to offset the decline in tourism revenue.

Europe posted sound growth, primarily fueled by Chinese and US tourists attracted by a weak euro. The old continent has become 'the world's largest in-season outlet.' Our analysis of European tax-free shopping data, conducted in partnership with Global Blue, showed that Chinese tax-free purchases in Europe increased by 64% while tax-free purchases by American tourists in Europe grew by 67%, primarily in the high end of the luxury spectrum. Meanwhile, Russian and Japanese travelers cut their tax-free spending in Europe by 37% and 16%, respectively.

Across Asia, performance varied widely:

' Japan has proven to be a consistent champion in both real and nominal terms, as a sound base of local consumers and the emergence of Chinese tourists looking to capitalize on currency 'uctuations are driving sales.

' South Korea shined, with '11 billion in retail sales value, growing at 4% in constant exchange rates despite the negative impact of the Middle East Respiratory Syndrome in the second half of the year.

' Hong Kong and Macau faded, primarily due to government reforms against graft and the gray market (respectively '7 billion and '1 billion in retail sales value, both declining at 25% in constant exchange rates).

' Local spending in Mainland China continued to contract slightly.

Chinese consumers play a primary role in the growth of luxury spending worldwide. They account for the largest portion of global purchases (31%), followed by Americans (24%) and Europeans (18%). Chinese shoppers continue to spend far more abroad than in Mainland China, which accounts for only 20% of their global purchases. However, the depreciation of the euro boosted the country to the global luxury podium; it is now the third-biggest market in the world, after the US and Japan. The most popular travel destinations for Chinese luxury shoppers shift'typically to Europe, South Korea or Japan'in response to currency fluctuations, which create temporary favorable price gaps.

Wholesale still dominates, but company-owned retail and e-commerce are growing faster

Wholesale is still the dominant selling channel within the personal luxury goods market, capturing 66% of the total market. However, retail continues to gain share, driven by network expansion (600 new directly operated stores opened globally in 2015, a decline from the 750 opened in 2014) and growth in same-store sales (13% at current exchange rates). The wholesale channel's slower performance stems from three factors: the ongoing 'retailization' of luxury (converting franchised locations into company-owned stores or joint ventures); the lackluster performance of US department stores across product categories (particularly in leather goods); and the decreasing sales of Asian watch retailers, which are coping with excessive stock and a reduction in the overall store network.

E-commerce grew to a 7% market share in 2015, nearly doubling its penetration since 2012. Specialized e-commerce players are outperforming the market globally, with Chinese e-tailers progressively extending their geographic reach and gaining share on a global basis. The e-commerce sites of European and American retailers (such as department stores) continue to grow, a response to customers' demands for an Omni channel experience. Luxury brands are losing share online overall, with highly variable performance: The largest brands with established direct online and Omni channel platforms are outperforming but the majority of brands still lag, especially European brands.

Luxury globe-trotters have also fueled the performance of airport retail, which posted a 29% growth rate in current exchange rates (18% in constant exchange rates) and now accounts for 6% of the global luxury market.

With the growing middle class in markets seeking good quality and good value, and consumers in mature markets looking for bargains, the off-price channel has more than doubled to nearly '26 billion. Markdowns are also increasing in prevalence across more than 35% of the luxury market.

Accessories remain the leading category

Among specific categories of personal luxury goods, accessories remained the leader, capturing 30% of the market and growing by 3% in 2015 (at constant exchange rates). That was faster than the next two largest categories, apparel (which grew 2% at constant exchange rates) and hard luxury (which contracted by 3%). Within accessories, high-end shoes (4%) continued to grow faster than leather goods overall (2%). Jewelry was the star category within hard luxury, growing at 6% in constant exchange rates, while watches were strongly hit by the channel overstocking in Asia and contracted by 6% in constant exchange rates.

Figure 1: The global luxury market exceeded '1 trillion in 2015, posting overall growth of 5%, driven by cars, hospitality and fine arts

Figure 2: Currency fluctuations inflated the personal luxury goods market to more than '250 billion, while real growth slowed down

Figure 3: The general trend was a depreciation of the euro vis-''-vis most other global currency

Luxury brands also face a host of tough issues such as rethinking the size of their store footprint and the role of brick-and-mortar shops in a world of growing digitization, as well as figuring out how to delight local customers even as masses of tourists flock to establishments in mature markets.

1.2. The situation in the market of Kazakhstan

Kazakhstan is becoming an important market for manufacturers of Luxury Brands. Apart from Uzbekistan's capital Tashkent where a few designer multi-brand stores and a handful of high street shops dot the city to serve local ruling elites, none of the three other former Soviet "stans" offer much immediate opportunity for fashion retailers. The tight-knit, uber-wealthy ruling-family elites from Dushanbe (Tajikistan), Ashgabat (Turkmenistan) and Bishkek (Kyrgyzstan) tend to fly to Dubai or Europe for their shopping, although now that Kazakhstan is developing so quickly, some are beginning to take the much shorter flight to Almaty for their spending sprees.

"Tajikistan, Turkmenistan and Kyrgyzstan are poorly developed in comparison with Kazakhstan and [to a lesser extent] Uzbekistan," says Violeta Mordas, a global research analyst at Euromonitor International, a market intelligence firm. This year, Euromonitor estimates Kazakhstan's apparel market will be worth $4.8 billion, while Tajikistan, Turkmenistan and Kyrgyzstan's apparel markets account for less than $1 billion combined. Even when you throw in Uzbekistan (with twice as many people as Kazakhstan), these four countries barely amount to half of Kazakhstan's market size. And in just four years time, Kazakhstan's apparel market is projected to nearly double.

At the pinnacle of Kazakhstan's consumer market, the number of high-net-worth individuals (HNWIs) is forecast to increase by 81 percent in the coming decade, according to The 2013 Wealth Report by Knight Frank Research. The number of people with (reported) assets of over $30 million will reach 244 by 2022. For comparison, this means upstart Kazakhstan will soon have more than one-third as many uber-wealthy citizens as Austria. Meanwhile, Euromonitor estimates that over the past five years, the number of affluent households in Kazakhstan (those with annual disposable incomes of over $75,000) has already more than doubled from 55,900 in 2007 to 116,800 in 2012.

Thanks to the staggering wealth pouring into the society from Kazakhstan's oil, gas and mineral deposits, "our country can flaunt its success with luxury goods now, but more and more, consumers here are demonstrating a high level of brand knowledge and appreciation for craftsmanship," says Aizhan Askat, manager of the Herm''s boutique in Almaty which opened in December 2011 on Kabanbai Batyr Street, which forms part of a budding quadrangle of fashion, jewelry and premium brand boutiques huddled in the city center bordered by Gogol, Furmanov and Bogenbay Batyr Streets.

Askat, who previously headed luxury concierge service Quintessentially Kazakhstan office should know a thing or two about her demographic. "Although some wealthy Kazakhstanis are still avid seekers trying to just 'collect' luxury labels, others are creating their own individualistic look by mixing brands together. As consumers get more informed about fashion both offline and online ' and more sophisticated too ' Kazakhstan's market will soon become more dynamic and complex for [late-arriving brands to] operate in," she predicts.

Olga Trefilova and Alex Kazakov seem to agree. As the respective publisher and editor-in-chief of Kazakhstan's successful edition of Harper's Bazaar (established through a local license with Partners Media Group), the pair's fashion coverage is often more experimental and adventurous than that of the long-established Harper's editions in Europe or the US. Even Trefilova's choice of dynamic young staff members like society page contributor Danila Okay (who can be seen wearing outfits more creative and style-conscious than many of his peers at Harper's editions based in the world's major fashion capitals) confirms Almaty's newfound status as a stylish city in the making.

In addition, couple of years ago, the first luxury mall 'Essentai' opened its doors to the luxury brands stores, such as Christian Dior, Louis Vuitton, Prada, Moschino, etc. This is the first shopping mall, which represents only luxury brands and brings buying behavior to the new level. Along with luxury flagship stores, American Saks Fifth Avenue entered the Kazakhstani market. Therefore, Kazakhstan (Almaty precisely) became the center of luxury industry.

1.3. The situation in the UK market

However with this promising market and important timing, Britain's famous luxury department store Harvey Nichols states that it is not a proper time to develop Asian market because the maturity level of Asian consumers towards luxury products is less than Western consumers. The spokesman of the Harvey Nichols adds if consumers just simply want to own a brand there is no need to shop at Harvey Nichols. This event can be seen to lure the Asian consumers' conspicuous consumption attitude to the luxury brand. On the other hand, Britain, the developed mature luxury brand market shows an increasing momentum. The success of brands such as Burberry is going to give a hand to the British luxury industry to increase by 57% by the end of 2015, based on the research from luxury trade body Walpole (2011). The growth future is bright. However, the consumer behaviour mode has been kept changing. Researchers have found that consumers in Britain are becoming saviors who demand accurately, timely, and are more and more discerning, which means consumers are not just motivated by price or show-off issues, they turn to be more concerning about the overall luxury brand equities. The attitude of western consumers is quite conspicuous consumption, which is a signal of new middle-class status and would be embarrassed to make such a display. In the luxury brand management system, the brand equity is an important part in marketing communication mix than other non-luxury brands. This particularly reflects in the gloomy economy situation. Luxury brands that focus on its heritage and brand history value instead of up-to-date fashion performed better than others. For example, travel campaign of Louis Vuitton's and Hermes' sponsorship of a horse competition in Paris serves them to remain within the World's 10 Most Powerful Luxury Brands. Top luxury Brands Companies have been quicker to react and re-center their brand core positioning. In addition in a competitive market where products and services are all very similar, successful brand positioning can have a significant impact on stable sales growth and long-term buying behaviour. The luxury hotel companies are a classic case. Consumers in the 21st century want a hotel with a soul and character; they want personality, which can give them unique experience instead of a confined box. Once the uniqueness of a luxury brand is created, then this can be utilized to be leveraged to optimize the profiting potential of the brand.

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