Global luxury goods market is sparkling again
The global luxury goods market looks set to crash through the $100 billion mark by 2008 according to new research. Asia Pacific is likely to perform particularly well, with Japan and China amongst the fastest growing luxury goods markets in the world.
The global luxury goods market was undoubtedly severely hit by recent global events, such as September 11th, Sars and the conflict in the Middle East, but as the impact of some of these events has receded the market has been able to recover well.
Indeed, by the end of last year the market was valued at some $70 billion* according to Mintel's report on the 'Global Luxury Goods Market,' but even this impressive figure is a conservative estimate as it does not reflect the retail value of wholesale and licence sales.
"As long as the global economic conditions continue to improve steadily and there are no further setbacks in the tourist industry, the luxury goods market looks set for significant growth over the next few years. The Asia Pacific market, in particular, is likely to perform strongly, which will drive the market on further still," explains Caroline Taylor, senior retail analyst at Mintel.
Around the world the increased interest in celebrities showcasing the latest luxury clothing and accessories has also boosted this market and has raised the general awareness of desirable luxury brands.
This means that a much wider variety of people have taken a real interest in getting their hands on these brands. In response, luxury goods companies now regularly bring out lower priced entry-level products or 'accessible lines', such as purses or wallets, key rings and hair clips.
Fashion and leather goods bag largest share
The fashion and leather goods sector accounts for the largest proportion of the global luxury goods market, with 42 per cent of sales, according to Mintel's market definition. The second largest category is the perfumes and cosmetics sector with 37 per cent of the market, followed by watches and jewellery with 18 per cent.
Within the fashion and leather goods category, the clothing sub-sector comprises the majority (almost 60 per cent) of the market.
"The clothing and footwear side of the luxury goods market is more fickle and more exposed to fashion trends than any other product category. Here a brand can rise or fall rapidly, often as a result of a designer's, or creative director's popularity," explains Caroline Taylor.
"Brand value is also more crucial than in other product areas, as fashion brands must carefully judge the balance between being fashionable and desirable, while not exposing themselves too greatly to the vagaries of fashion."
Mintel believes that the continuing growth in the leather goods and accessories sector, led by companies such as Louis Vuitton and Gucci, could soon see this part of the market overtake the ready-to-wear sector in terms of total category share.
Europe leading the way
Europe has the largest luxury goods market in the world, with over 40 per cent of the global market, but the economy in this region (particularly in Germany) is still less than robust.
The second largest market is that of the Americas, of which the USA constitutes the vast majority of sales. The Americas were undoubtedly severely hit by recent global events, but as the impact of some of these events lessens, the market continues to show great resilience and good signs of bouncing back.
"Despite the recovery in the Americas, Mintel believes that this market will soon be overtaken by the Asia Pacific region in terms of global luxury goods market share, with the Japanese and Chinese markets amongst the fastest growing luxury goods markets in the world, in 2003," comments Caroline Taylor.
Japan remains a key market for luxury goods brands. Traditionally a prestige-driven culture, which values outward signs of status, Japanese tourists often look to spend a great deal on luxury brands when they travel abroad, with price points anywhere up to 40 per cent lower in Europe and the US than in Japan for example.
China has been identified as potentially the largest luxury goods market in the world, due to its large population and rapidly developing economy. However, for the moment the market remains a relatively small one.
As the country continues to open up both economically and politically, there is increasing affluence and also a growing awareness of Western brands. This is largely as a result of increased travel and presents a key opportunity for the brands.
Counterfeit luxury goods are a major global problem, with the value of counterfeit goods running into the billions.
Counterfeiting has long been a factor in the global luxury goods market, particularly in developing countries that typically have high import tax rates, so increasing the market prices of already expensive goods. These markets are also typically those where a large percentage of the counterfeit goods are produced.
Mintel believes that the majority of those who buy counterfeit luxury goods do so knowingly. These consumers are presumably more price-conscious, either through the inability to pay the price for the genuine article, or reluctance to buy the real thing when they can purchase a near approximation for considerably less.
This situation has been exacerbated by the improvement in the quality of fakes and the development of so-called 'superfakes' that are often of similar quality to the originals.
* Foreign exchange rates have a two-fold effect upon the luxury goods market. Firstly, with the global luxury goods market, as with many other markets, exchange rates impact upon the luxury goods operators themselves. Many operators are based in Europe or North America, yet sell a significant proportion of their products outside of their domestic markets, therefore currency fluctuations can have a strong impact on both profitability and topline sales. Secondly, they impact upon the international travel market and, in particular, the purchasing power of international travellers in the all important duty-free/travel retail market.
For more information on the 'Global Luxury Goods Market' from Mintel, click here
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