Luxury Briefing.

HERE you are, nearing the end of your new copy of Luxury Briefing, facing the beginning of a new season and wondering where the summer went. What summer? What recession? some of you may also be saying. Like a natural disaster, the impact to date of the current global downtown (which is by no means moving towards a state of recovery) is sporadic, unfocused and erratic – one house collapses whilst next door stands firm. Our view is that we are yet to experience the aftershock.

Increasingly we are seeing that businesses that were forewarned had the opportunity to forearm – and have been able to shore up defences and strengthen foundations to withstand these shaky times. And knowing how your consumer base is changing is proving to be more important than ever.

Numbers of the world’s wealthiest consumers have dropped by 14.9% to 8.6m, while wealth ownership among this group alone is now down to $32.8 trillion, a 19.5% drop in assets over two years, according to the latest findings of the World Wealth report from Capgemini Merrill Lynch.

In monetary terms, this means that the world’s HNWI population (as in individuals with $1m or more assets to invest) has now dropped to levels last experienced in 2005, when the first signs of the current recession began to emerge. The most significant declines, say report authors Dan Sontag and Bertrand Lavayssière, have occurred in three regions; North America (-19%), Europe (-14.4%) and Asia Pacific (-14%).

This contraction in the overall HNWI population was further exacerbated by the steeper than average regional and global decline in the overall numbers of Ultra-HNWIs (people who have investable assets of $30m, excluding primary residences) which shrank by 24%.

Despite current market issues, China’s HNWI population is now greater than that of the UK, making it the fourth largest in the world (364,000), after exceeding France in 2007. Brazil, meanwhile, surpassed Australia and Spain to reach 10th place among HNWI populations globally (131,000).

All of the above has impacted severely on how HNWI consumers have been spending, a trait that is expected to continue well into 2010. For psychological reasons we are witnessing a move away from bling and back towards a more considered, some would argue conservative, or very pared-down view of luxury – one we’ve called ‘omnilux’. We are also seeing HNWI consumers become more conservative in their investment purchases – in the art world, for instance, they are turning away from contemporary art, and the whole design art ‘thing’, and investing instead in Impressionists, old masters, and the early 20th-century Modernists.

Wine has likewise become a big focus for shoring up depleting assets along with classic and vintage watch brands and diamonds – Sotheby’s Geneva auction house had record sales of $15m last year, while the Wittelsbach blue diamond still managed to fetch $24.3m at auction in London, during the darkest part of the recession. That said, we are seeing a steady decline in the sale of luxury cars, yachts and private jets – all these key indicators of just how well, or badly, a market is doing.

Measured against sales of these once-coveted status symbols of Robert Frank’s Richistanis, the luxury market and its traditional customer base is still very much in trouble. In the US alone sales of all major luxury car marques are down – Porsche (-25.2%), Maybach (-32.6%), Lamborghini (-21%), Mercedes (-11.5%), and BMW (-9.7%).

In the world of yachts, attendances of all annual yacht shows have been down, while many brands are offering up to one third off yachts currently valued at $30m plus, to attract buyers back to the market.

Meanwhile business jet orders fell 42% in 2008 alone – from 452 jets to 262, as companies and individuals cancelled orders or rationalized spends by choosing more manageable options such as fractional ownership.

Looking ahead, the value of this market is expected to grow to $48.5 trillion by 2013, advancing at an annualized rate of 8.1%, with North America and Asia Pacific leading the charge. Long term, the report authors expect Asia Pacific to outstrip the US in terms of HNWI size and wealth ownership, with China particularly contributing to this shift. Other markets to watch include Latin America, China and the Middle East, but also countries such as Mexico and Colombia, where equity market declines have been smaller than expected.

Perhaps the biggest worry, for luxury brands especially, is the current growth of political conservatism in Russia, where a declining population, increased government regulation and on-going corruption in the corporate world particularly is making it less and less attractive to investors. So watch out for a fall-off in long term growth and sales in the luxury sector in this region, as investors – and the capital they generate in the market – opt for stability and less constricted trading options. We see the leaves begin to drop and the chill of winter setting in already.

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