Luxury Briefing.

AS we get ready to launch our annual Luxury Futures Report, our thoughts naturally turn to the current state of the market – the yo-yo activities of the euro, the will it? / won’t it happen again? double dip recession, the slowdown of the Chinese economy and devaluation of the euro. A Troika, you could say, but one of a different sort, and one certainly the luxury sector – still growing at 10% per year according to our latest ?gures – needs to think about if it is to survive the upcoming market volatility.

Why? Well, despite what most of us believe about emerging economies, Europe is still one of the sector’s most lucrative markets – with Italy, UK, France, Germany and Russia (especially St Petersburg) leading the way in global annual sales. Any crisis with the euro – and one is imminent – is therefore a crisis for luxury.
Add to this the fact that just under half of all luxury goods purchases made in key capitals such as London, Paris, Milan and Munich are made by Chinese tourists buying abroad to sidestep luxury taxes in their own country (a fact that adds over 30% to any of the prices brands choose to charge them in Shanghai or Beijing), and you can see why a weakness within the yuan or trouble with the euro will be disastrous for an already problematic market.

While Europeans may not be buying luxury brands in bulk within the EU, their Chinese counterparts are, and continue to do so. But if they withdraw (and with the Chinese economy slowing down, this is a likely scenario), then luxury brands will have to look to new territories to maintain that 10% annual growth we have been witnessing over the past two years.

So where to next? The usual suspects, of course: Brazil and India for two, or the BIs as we call them, now that Russia becomes less and less attractive and China problematic in the long term. But as our latest Luxury Futures report suggests, there are a new set of countries and indeed acronyms coming online that merit further investigation. Trading blocs like the MAVINS, CIVETS, MIST and CAPPT.

For MAVINS read Mexico, Australia, Vietnam, Indonesia, Nigeria and South Africa; for CIVETS read Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa; for MIST read Mexico, Indonesia, South Korea and Turkey and for CAPPTs read Chile, Argentina, Peru, the Philippines and Thailand. Roughly speaking all are regarded as safe bets for investment due to young populations, a burgeoning middle class, a semblance of political stability and a high level of natural resources that are needed by a neighbouring country or distant super power – which, in the case of Australia, Peru, Argentina, and Nigeria, is increasingly China.

Equally, the GDP forecasts for these regions are a lot better than their EU counterparts. The Philippine economy is expected to grow 4.2% in 2012 and 5% in 2013. Thailand, the second-largest south-east Asian economy after Indonesia, is predicting GDP growth of 5–6% this year. Meanwhile, the Argentine economy will grow by 6% in 2012 alone.

With a rise in GDP comes a parallel rise in af?uence and retail spends. Indonesia’s af?uent population increased by almost 20% from 2011 to 2012, three times the projected ?gure, while in Africa, consumer spending will double by 2020 as economic growth outstrips most non-BRIC emerging markets. South Africa, Egypt, Nigeria,
Algeria, Morocco, Angola, Libya, Sudan, Tunisia and Kenya are key markets, accounting for 75% of the continent’s GDP.

By 2030, Africa’s new middle class – more than 300m strong – will spend $2.2 trillion a year, about 3% of worldwide consumption, with key spends on luxury taking place in so called golden hubs such as Lagos and
Johannesburg, where many of the continent’s so-called black diamonds are located.

In Mexico, consumer spending will increase from $196.85bn to $257.88bn in 2015. And so on and so forth. All good, then, for the future. Perhaps. But be prepared for changes in how our products look as consumers from these emerging markets demand a luxury that is all about status, value and visible signs of purchase. Stage one luxury, as we call it: the kind of showy luxury that EU brands have been moving away from over the past decade as af?uent western consumers sought out brands that were about discernment, stealth, low visibility and experience.

Well, that was then, and this is now: showy, ?ashy, logo ridden. And so luxury comes full circle. That, or you create market speci?c pieces – which is what many of the brands we interviewed for this report are
secretly doing. But that, as they say, is another story.

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