03 December 2013 | MOF Team
As the Asia-Pacific registers expanding budgets for, and purchasing of, high-end products and services year after year.
Market leaders America, France and The UK are facing growing rivalry from the well researched BRIC regions - Brazil, Russia, India and China, as disposable income and investments increase across emerging markets further East.
The most important adaptation that established luxury brands need to make - and largely across the board have been making - is to move their offerings towards what industry insiders refer to as ‘affordable luxury.’ This step involves aspirational high-end brands creating products that are both desirable and affordable, allowing consumers in emerging markets to exercise brand awareness and buying power in this new retail sphere.
With consumer spending in emerging markets projected to increase by more than 35% over the next five years, luxury brands are working towards making their products and services more accessible globally, without ‘dumbing down’ their offerings and brand ethos. By 2018, it is predicted that the Asia-Pacific will be the world’s largest region for luxury goods production and spending.
Between 2008 and October of this year, India was reportedly the most dynamic luxury market, recording greater relative growth than other emerging and established markets worldwide.
Whilst well-known ‘affordable luxury’ producers such as American brands Michael Kors and Coach have made notable gains in established and emerging markets due to their pricing and revenue models, British fashion and accessory giant Burberry has turned to expanding and taking ownership of its cosmetic and fragrance ranges in order to capitalise on the promise and opportunity of emerging luxury markets worldwide.
Nigeria is one of the countries with the fastest growing demand for champagne worldwide, highlighting the changing landscape of what was once a European dominated market, and has now become a global luxury breeding ground. A further example of this shift is the world wine market - the largest market in the world for high-end French Burgundy is now Hong Kong, as Asia takes the title from New York for the first time. France and Italy are famously the origin country of the most luxury brands worldwide, but the number 3 position is has now been filled by Japan, emphasising the move towards the East, and towards emerging markets in the luxury sphere.
Buyers from areas with more disposable income than ever - Asia, Latin America, Russia and the Middle East - are beginning to take ownership of emerging luxury markets and using their new purchasing power to explore the iconic cars, haute couture, watches, fashion, wines and high-end hotel service brackets.
Japan, Asia’s technology hub, has now emerged as up to twenty years ahead of the rest of the continent in terms of the manner in which it views luxury goods. In Japan, consumption of high-end clothing, accessories and technologies has turned away from mass consumerism, and a preference for the most noticeable logos, to a desire for high quality products that reflect their personalities and individual styles. In 2012 it was predicted that China held this view before Japan, but by 2013, the latter has taken control of a more personalised approach to luxury spending. To this end, brands that are suffering in Asia are those with immediately recognisable logos and trademarked patterns, including Louis Vuitton and Ralph Lauren.
Conversely, the Chinese luxury market is affected and influenced by spending trends and investment confidence in America, which feeds directly back to the Asian continent, rather than within its own stylistic borders. At this time, over one hundred luxury goods marketers are present and active in China, bolstering the country’s emerging influence in both Asia and worldwide.
The wealth and ranking of countries worldwide is constantly changing and can largely not be predicted, therefore it is imperative for luxury brands to keep abreast of global trends and fluctuations in order to prepare their emerging markets strategy accordingly. One way to ‘test-the-waters’ of an up-and-coming location is for luxury brands to place their products into general and high-end department stores in their chosen areas, and to increase online engagement through multi-channel digital marketing - leaving the physical sale of products to a local third party with deep knowledge of their luxury retail climate.
High-end brands are adapting their offerings in emerging markets year after year to ensure that they are up-to-date with the wants, needs, and financial boundaries of their customers. Luxury in emerging markets is no longer about projecting to open more stores around the world, but rather to increase the productivity and profitability of their existing bricks-and-mortar sites.
As well as the well documented ‘BRIC’ regions; Chile, Uruguay, Georgia, Malaysia and Indonesia are all prime locations to take important market percentages in the luxury sphere. Both Azerbaijan and Mongolia may not have officially joined the high-end market race, but respectively possess and invest enough wealth to justify luxury brands emerging in those areas. The key to successfully expanding luxury brands into these global emerging markets is for companies to understand the fundamental differences between each location, as opposed to thinking of emerging markets as all alike. Without in-depth analysis, high-end brands may propose stores in unsuitable areas based on superficial market data. For example, the number of millionaires in Western Europe is decreasing, and the number of luxury stores in Wales far outnumbers the number of wealthy individuals who can afford those products. Futhermore, in China there are four different types of wealth bracket, and the Asian giant is the only emerging market to have a noticeable female wealth segment, allowing brands to specifically target those who traditionally have influence over the spending habits and budgets of their family.
In India, prior to the launch of exclusive high-end malls such as DLF Emporio in South Delhi, luxury brands stationed their stores within expensive hotels, where the doors are manned by security to ensure that only the wealthy have access to their products. With a reported almost half a billion Indians surviving on just over $1 a day in 2008, luxury brands in South Asia adapted their global strategy in order to enter this emerging market by restricting their store locations to just those where disposable income is available. This situation, where the rich and poor live side by side in the same areas, is unique to India, as in countries such as China and Japan, the less wealthy population tend to favour more affordable rural locales in which to live and spend.
Paris-based French accessories and apparel manufacturer Hermès, which specialises in high-end goods and accessories, entered the emerging markets in Asia in 2008, by creating Shang Xia - a Chinese luxury brand launched underneath the Hermès International banner. Introducing Shang Xia marked the first occurence of Hermès creating another brand for a specific market in order to emerge within the growing Chinese high-end arena. By creating a luxury brand in China, where its products are made and sold in China solely for the Chinese market, Hermès reported its first revenue gains from products made outside of France. The success of Shang Xia was irrefutably cemented in October 2013, when the French-owned Chinese brand opened its debut European store in Paris, just street away from a Hermès boutique.
Conversely, Hermès’ second entrance into the Eastern market just three years later was not as well received. In 2011 Hermès began delivering luxurious saris to the wealthy population of the Indian sub-continent, as their presence within emerging luxury markets began to solidify globally. Whilst an Hermès scarf is reportedly sold every 25 seconds at one of their 323 exclusive stores worldwide, the brand’s foray into this traditional and selective retail community was not as successful. With prices ranging from $6100 to $8200, each Hermès sari was decorated with patterns inspired by its signature silk scarves, and made available in a strictly limited number of 28 from its Mumbai store in order to increase their exclusivity and desirability. The longevity of this solely Indian collection was not defined at its launch, and the long-term strategy of the locally-inspired range was dependent on on-the-ground reaction and consumption.
Reaction to the ‘Indianisation’ of the Parisian brand in order to tap into the potential of India’s emerging luxury market was disappointing, as just 6 of the 28 saris were sold in the year following the collection’s launch, forcing Hermès to rethink and re-adapt its strategy in order to succeed in South Asia. As the sari is a garment worn by the majority of Indian women every single day, the population favoured locally made, traditionally decorated saris that were more affordable and more in-line with the iconic cultural history of the garment.
The notable difference between the marketing strategies of Shang Xia and the Hermès saris is that whilst the former celebrates the national identity of China to challenge global Western brands, the French company’s efforts in India merely took inspiration from a local product and applied that directly to existing designs and outputs. Consumers in emerging markets are reported to find it more appealing and affirming to use their wealth to purchase high-end items produced in and for their own country, adding a heightened sense of exclusivity over the rest of the world, which is the very basis of luxury spending. The need to adapt global strategies in line with customer preferences and spending habits is integral to luxury brands looking to enter emerging markets to avoid alienating new global client bases by providing products and services that cater to spending patterns and attitudes of entirely different countries, cultures and economic groups.