2010 Luxury Brand and Consumer Trends
The Great Recession brought great panic to the luxury industry in 2009. Lower affluent individuals tightened their budgets and funds, slowed spending (particularly on luxury), causing many prestige brands to consider the sinful idea of: discounting. Coach bit the bullet and cut prices, and unlike what luxury experts predicted, the prestige brands retained their luster and even thrived. From a global lens, the luxury market is experiencing huge shifts that show extraordinary short-term revenues, but are profits sustainable?
The luxury market has rebounded after a recessionary slump nearly across the board. Global luxury sales increased 15 percent in the first quarter of 2010. Nearly all categories are in the black. e-Commerce, luxury, jewelry and restaurants saw May sales rise 13.7 percent, 9.7 percent, 6.4 percent and 2.8 percent, respectively, reports Reuters. Bricks and mortar retailers are also up. Saks countered last year’s loss with record profits in the past quarter, with sales up 6.1 percent – and an astounding 395 percent stock increase. How have prestige brands made such a comeback?
If the recession provided any key lessons, it’s the value of diversification. Those prestige brands with all of their eggs in one, American basket, suffered when the market bottomed in 2009. Milton Pedraza, CEO of the Luxury Institute, termed the strategy as a “self-imposed limitation.” He added that “overseas markets like China could be key growth engines for luxury players and also sees Japan as a ‘cash cow’ for those brands who can manage costs well.” Indeed, Chinese consumers account for nearly 25 percent of global luxury sales, followed by Americans, Europeans and Japanese, each taking around 20 percent of pie. Many large-sized luxury brands see the writing on the wall.
Taking Pedraza’s advice, historical luxury brands, such as Hermes and LVMH, have bumped up profits by entering the Asia market, writes Rob Lever of AFP. “Shiseido, Japan’s largest cosmetics firm, expects sales of its high-end cosmetics to grow up to 20 per cent a year in China over the near term, making it a key pillar of its global expansion plans,” reports the Economic Times. For prestige brands, all signs are pointing to Asia right now, but what should we expect for the future?
Global luxury goods industry sales are expected to grow 4 percent in 2010 to $195 billion dollars after 8 percent decline in 2009, according to the consulting firm Bain & Company. Five to ten years out, Gen X will pick up the torch and lead luxury spending. As Baby Boomers conserve spending…
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