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Long Live the long-haul love of luxury
The usually resilient luxury market took a massive hit in 2008 after the demise of Lehman Bros and the start of the international banking crisis. But the sector is fighting back - and predictions are that it is going to outperform the market in the coming years. Josephine Collins looks at the issues.
The luxury market is a strange creature, surprisingly resilient during times of recession as the super-rich remain untouched by the tribulations of mere mortals. That is until the banking crisis of 2008 that led to financial institutions crashing all over the world. Unlike in previous recessions the luxury market was hit immediately and harshly - down tens of billions of dollars in one year.
It was not that rich individuals stopped shopping but, ironically, the luxury sector was a victim of its own success. In large part, the luxury sector was hit so hard for the very reason that 'luxury' shopping has seeped into the everyday. It is no longer the case that international luxury brands are restricted to the very rich. The chance to buy into the values of brands comes largely through accessories at price points that, while still sky high, are at least accessible - hence the phenomena of waiting lists.
Luxury brands have also found new markets to exploit - China and its fellow BRIC countries - each with increasing numbers of consumers eager to buy into the luxury dream and drive booming sales and higher profits for the brands.
Recovery has been difficult, but the latest report from consultant Bain & Co - which has been analysing the financial performance of more than 230 global luxury goods companies and brands since 2000 - suggests things are looking much brighter.
Bain's Spring 2011 Update: Luxury Goods Worldwide Market Study predicts that, buoyed by strong first quarter sales in US and Europe and continuing growth in China, Russia, Brazil and the Middle East, luxury sales are projected to grow to £163 billion (€185 billion) in 2011, up 8% from 2010.
That's a pretty good result compared with some of the figures that have been coming out of mainstream brands and retailers so far this year.
Further, Bain thinks that the luxury goods sector will keep on growing, albeit at a slower rate of 5% to 6% until 2014.
Bain found that department stores and direct owned luxury stores saw double digit sales increases in February and March this year compared with 2010, and it was accessories, leather goods and 'hard' categories - such as jewellery and watches - doing particularly well. Retailers interviewed for the Bain study were confident that luxury consumers are returning to their enthusiasm for spending.
The Bain analysis is based on an international survey, and one of the characteristics of the luxury market is its significant dependence on tourist shopping. Travelling and shopping go together in all sectors - but it seems none more so than for international luxury consumers.
This is borne out by a recent report from London's New West End Company that forecast an extra £2 billion ringing in West End tills this year as the number of "retail tourists", as it describes them, will leap by 15% this year.
According to the annual GlobeShopper Calendar from New West End Company and tax free shopping service provider Global Blue, China, Russia and United Arab Emirates are expected to be the most significant inbound shoppers this year with people from Kuwait and Nigeria hot on their heels.
The report suggests that not only do these shoppers want to buy international and luxury brands in the UK, but they especially want British luxury goods - and they also want an authentically "British" service experience.
Commenting on the forecast, Julia Carrick, chief executive of Walpole, the not-for-profit organisation that represents the British luxury industry, says: "International visitors are extremely important to the British luxury industry, and helped boost trade in the recent downturn. We have seen a strong growth of Europeans in London who have been looking to take advantage of the weak pound."
She went on: "China has also proved to be a significant driver in the London market, last year UK retail spending from Chinese tourists exceeded £350 million and that is only set to grow. In recent years there has been a real flight towards British heritage from international visitors, they want to own something that is beautifully made and is quintessentially British.
"International shoppers are also looking for a shopping experience that is exceptional. Buying the product is not enough, customer service is key and this is something that the British luxury industry prides itself on."
Interestingly there has been yet another report out very recently with some great luxury brand information in it. The annual BrandZ Top 100 Most Valuable Brands, compiled by agency WPP's Millward Brown Optimor research business, tracks the value of brands using financial information and consumer studies and ranks them each year.
The ranking picks out top valued brands in different sectors, and in luxury it can be seen that as sales increase in the vast new consumer markets of the developing economies, the value of brands is rising exponentially.
The Top 10 most valuable luxury brands, see the table above, has a few surprises on it - not least which brands are on the up and which have declined in value since last year. And there is only one UK luxury brand in the running, and that brand - Burberry, of course - made it onto the list for the very first time this year.