Emerging markets to fuel luxury growth

11 May 2010

BEIJING: Popular interest in luxury brands will continue to rise in emerging markets like China in the future, as a range of economic and social factors combine to boost demand for premium goods.

A study by Credit Suisse, the investment bank, found that the "number of rich people has increased despite the recession" in China as a result of the continued expansion of the domestic economy.

The share of national income held by the top 10% of the Chinese population also jumped from 24.3% in 2004 to 35.7% in 2009, greatly stimulating the demand for premium offerings.

Based on a survey of members of this demographic, Credit Suisse found that European manufacturers like Louis Vuitton, Chanel and Omega enjoy the highest levels of favourability in China at present.

While multinational firms generally held sway among participants, local rivals such as Chow Tai Fook and Chow Sang Sang achieved the best ratings in the jewellery segment.

Less positively, the proportion of shoppers who would be willing to pay a premium for foreign cosmetics fell from 33% in 2004 to 20% in 2010, largely due to intense competition in this category.

Many of the trends working in favour of high-end products in China – like the growth of the middle class and improved purchasing power – were also said to be observable in other emerging economies.

"The luxury goods industry has seen a turnaround. From this year on, signs point to growth. A particular boost is coming from the increasing wealth of consumers in emerging countries," Olivier P. Müller and Robin Seydoux, of Credit Suisse, said.

These nations should help offset difficult trading conditions in Europe, the US and Japan, where "negative wealth effects" have led to buyers choosing to defer purchases.

Similarly, as the industry suffers from extended manufacturing lead times and can damage perceptions by cutting prices, brand owners may struggle to meet changing priorities in these areas.

More broadly, the market saturation and ageing populations in these regions mean their long-term potential is more limited when compared to outlets like China and India.

Overall, Credit Suisse predicted luxury revenues would rise by between 8% and 9% on an organic basis worldwide in 2010 and 2011, having seen a "slight pickup in demand" at the start of the year.

As previously reported, Credit Suisse estimated that private consumption in China will leap from $1.72 trillion (€1.26tn; £1.10tn) in 2009 to $15.4tn in 2020.

Management consultancy Booz & Co also recently forecast that the number of high net worth individuals with assets of over $1m will climb to 560,000 in China by 2011, compared with 380,000 two years ago.

Data sourced from Credit Suisse; additional content by Warc staff