Luxury shoppers lured by innovation
The rise in global spending on luxury goods, including clothing and shoes, is on the up. But the latest research shows this highly competitive market is no longer just for the elite - and that brand loyalty has been replaced by a love of experience.
Increasing numbers of global millionaires, greater consumer confidence and line extensions that bring high-end labels to the hands of mass consumers are all good news for luxury fashion houses.
A new report from just-style also believes that growth in the luxury market will be helped by the numerous countries worldwide whose demand for luxury fashion outweighs both salary and available luxury options, and whose economies are growing rapidly.
Still, the report - 'Global market review of luxury apparel: forecasts to 2012' - points out that some challenges remain, since the market for designer wear is complex, highly competitive and filled with consumers who become less and less brand loyal each year.
Other issues include the fact that the major players aren't all publicly owned, the impact of large counterfeiting operations, and the mix of luxury- and mass-lines that can dilute fashion houses' brand cachet.
Experts calculate that the total luxury market will grow to US$2 trillion by 2010, with US$1 trillion in the US and the rest worldwide.
Some 35 companies from Europe and the US control nearly two-thirds (60%) of the high-end luxury market. Giorgio Armani and Gucci are the world's most desirable brands, followed by Versace and Christian Dior.
The luxury fashion market represents about 5% of the total luxury market. This translates into a 2010 market size estimated at US$50bn in the US and US$50bn for the rest of the world - a total of US$100bn.
Compared to mass retail growth of around 5%, the luxury apparel market grows at roughly 10-15% annually and is calculated to reach US$2.4 trillion by 2012.
This growth will be fuelled by gains in Asia (primarily China), India and Russia with their burgeoning markets and growing number of wealthy people - and led by the top three luxury fashion companies - LVMH, Gucci Group and Christian Dior Couture.
However, Europe and the US will continue to set the designer wear trends for the globe says just-style's report.
Helping to drive the sector's growth are the world's 8.2 millionaires, who between them had US$30.8 trillion in assets in 2005. Global growth in the number of millionaires is expected to be 7% over the next five to seven years.
Luxury is also benefiting from greater disposable incomes worldwide, a still-growing "baby-boomer" population, the postponement of marriage and children until later in life, and a large empty-nest segment.
There will also be more young professionals, singles and divorcees with more money and a strong desire to spend it on fashion, especially designer and luxury items according to just-style's analysis.
And even those not in the ultra-rich circles will try to have one or two signature high-end pieces in their wardrobes, complemented by lower-priced fashions.
Trends to watch
Niche segments and strategic line extensions are proving to be the most effective and efficient ways of reaching the fickle luxury shopper.
Brand extensions into beauty, spa products, fragrances and the home arena drive additional revenues, attract new customers, rejuvenate and maintain current shoppers, and allow entry into new markets and regions.
Growing areas are line extensions into fashion for babies and kids, and the pet arena, which includes dog collars and down coats.
Savvy brands are also cultivating brand loyalty by creating an experience that will resonate with luxury shoppers. Innovation here appeals particularly to US and European consumers who are less brand loyal than their Asian counterparts.
Part of creating the luxury experience is to showcase designer wear in venues that have the look and feel of a high-end experience. A rise in the number of brand boutiques and luxury vendor boutiques within department stores is driving more traffic and reinforcing the high-end brand message.
Accessories and other more affordable luxury products like wallets, belts, hosiery, key chains will help fuel revenue growth for designers and extend their reach into new categories of consumers.
According to the Luxury Institute, upscale retailers operate by the 20:80 Rule, ie 20% of shoppers account for 80% of revenues. Some argue that ratio is actually 10:90.
Exclusivity vs market share
As international luxury brands grow, there is a tenuous balance between maintaining exclusivity and growing revenues and market share.
It's key that top luxury brands maintain their cachet and their distinction from the less-pricey lines to the more exquisite collections - so that their mid-tier lines are not just a downgrade of luxury.
Consumers of high-end designer wear are shopping on experience, design and quality rather than price - and luxury brands need to remain flexible enough to meet the needs of different cultures around the world.
High levels of customer service must embrace domestic luxury shoppers and foreign travellers purchasing high-end designer wear. And service should be consistent, whether in New York or Shanghai.
Threat to profitability
Global counterfeiting continues to threaten the profitability and brand cachet of designer wear labels.
Despite the fact apparel companies are spending millions of dollars trying to protect their brand names, new research by UK-based law firm Davenport Lyons has found that sales of Louis Vuitton and Gucci fakes are almost as high as sales of the "real thing."
The same report also found that nearly seven out of ten consumers are willing to mix and match authentic luxury items with known counterfeit pieces.
For more information about just-style's report on 'Global market review of luxury apparel: forecasts to 2012,' click here
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