As the effects of government stimuli wear off and with the global economy heading towards a double dip recession that will impact the traditionally wealthy economies of Europe, the US and Japan more than most, luxury brands have been looking to Asia for salvation. And they’ve probably found it.
Despite the recession, the consultants, Bain & Co predicts luxury industry sales of €158bn in 2010, up 4% after a drop of 8% in 2009. And these sales will, on the whole be driven by Asian operations.
25% of worldwide sales
Shiseido, Japan’s largest cosmetics company anticipates sales of high-end cosmetics to grow 20% a year in China over the next 3 years. In fact, China is driving the luxury business and is now the second largest market for luxury goods, accounting for 25% of worldwide luxury sales. More than the US, Europe and Japan who each account for about 20%.
According to Capgemini there are more than 345,000 Chinese millionaires and many of them are keen to snap up luxury products that offer a little bit of exclusivity and heritage.
India crucial for long term success
But the Chinese market is not the only market helping luxury brand ride out the recession(s). In India, Porsche Design recently opened its first store in New Delhi, joining Prada, Louis Vuitton, Ferragamo and Mont Blanc who are all setting up operations in the capital of the republic. Louis Vuitton now has 5 stores in India.
Luxury jewelry retailer Tiffany & Co reported recently that sales at Asian stores open more than 12 months, with the exception of those in Japan, rose 21% during its most recent quarter. The Asia-Pacific region is driving expansion, with stores scheduled to open in Singapore, South Korea and Hong Kong.
China has the highest sales per square foot
Mainland China is at the heart of Tiffany’s Asian expansion, with the number of stores there due to rise from the current 12 to as many as 30 by 2015. Chinese stores have the highest sales per square foot of US$3,800 compared to US$3,000 in other stores.
French luxury giant Hermes reported strong growth in sales in the first quarter of 2010, boosted mainly by sales in Asia but not including Japan.
LVMH, the company behind luxury brands such as Dior, Louis Vuitton and Moët Chandon recently reported a 11% increase in 1Q 2010 sales. Watches and jewellery sales rose by 33%, wines and spirits by 18% and fashion and leather goods by 8%. Sales of Dom Perignon and other LVMH owned champagnes shot up by 33% in the same period.
Watches and timepieces, there is a difference you know, have also had a bumper start to 2010 and the mood at Baselworld, the world’s largest watch and jewellery fair, was bullish after positive announcements from Bréguet, Blancpain, Omega and Longines whose sales were up 46%, 48%, 50% and 49% respectively in January and February 2010.
Due partly at least to the fact that it doesn’t have many high end high margin devices, Sony Ericsson has been plagued by declining sales for years and hasn’t made a net profit since 2Q 2008.
However the firm moved quickly to develop high end phones and launched the Xperia X10 and Vivaz last year. The result, the company reported a net profit for 1Q 2010 of €21 million, compared with a €293 million net loss a year earlier. Analysts were expecting a €128 million loss.
US leather goods maker Coach has relied for years on the domestic market and Japan. However, after a slow start, it is ramping up operations in Asia and expects sales in China to rise to US$250 million by 2012, up from almost US$100 million this year.
Luxury brands will have to make significant changes to the way they operate in Asia. And they must learn to understand Asian consumers, learn how to build relationships with them, what are their influencers and how best to engage them. If they, they will find salvation not in the short term, for some time to come.