Jonas Hoffman: Why Consumers Of Luxury Goods Come From Emerging Markets

SKEMA Business School Professor discusses who is actually buying high-end products.

The luxury industry is currently on a remarkable journey. Quarter after quarter, Hermès, Louis Vuitton, Gucci et al. announce record sales in a growing market with profits in double-digits. Luxury companies, nevertheless, affirm unanimously that this journey is as challenging as it is exciting. The acceleration imposed by globalized markets, stock markets and digital technologies to name but a few factors, demands velocity, agility and continuous adaptation.

What trends are shaping the industry?

1.   The sophistication of the Chinese client

The celebrations of the Chinese New Year are a good opportunity to highlight the exceptional role that Chinese clients currently play in the luxury industry. According to Bain & Co, last year they became the primary consumers of luxury goods worldwide, representing 25% of the total consumption. Fortunately for Western economies, they buy more than 70% of these goods abroad. A recent trend in the Chinese market has been the growing sophistication of these clients; after an initial ‘catch-up’ phase where they just bought symbols, now there is evidence that a logo or a label is no longer enough. Experiential luxury is on everyone’s lips for the coming year: wine tasting courses are popping-up around China. More and more clients are coming to wine producing regions in France and Italy, as well as the US, to learn first-hand how wines are produced and tasted.

2.   Digital Everywhere

After some hesitation, companies have fully embraced digital in all its possibilities. This was a logical response to a world where smart devices are everywhere. Smartphones, tablets and the like became the first touch point with a luxury brand, especially among youngsters. Early movers like Burberry earned a solid reputation among the young crowd, and their London flagship which opened last year is an example of seamless online/offline integration. Indeed, the challenge ahead for retailing is substantial.

3.   Young, Connected Clients

It ‘s important to remember that clients in “emerging” markets like China, Brazil or India are younger than the traditional luxury clientele, and they are hungry for novelty. Correctly operating online social networks like Sina Weibo in China can be a powerful vector of differentiation.

4.   New Opinion Leaders

The internet also gave birth to a new generation of opinion leaders in the luxury industry. There is a growing role of online networking sites and microblogs in the luxury fashion industry, bloggers like Brian Boy or street photographers such as Scott Schuman.

5.   Sustainability Becomes Mainstream

As with the Tesla electric luxury sports car, or Osklen’s new luxury in Brazil, companies have integrated sustainable considerations into their operations. Luxury brands are seen as role models, and clients, celebrities and NGOs are vigilant on how they address environmental and social issues.

6.   The Great Opportunity Represented By ‘The Happy Few’

One of the effects of globalization was the rise of a category drawn from the new international social class of the hyper-rich, which has quickly swelled the ranks of the exclusive “Billionaires’ Club”, a group that has increased tenfold during the last twenty-five years. These Ultra-High Net Worth (UHNW) individuals with a net worth superior to $1 billion, have specific consumption patterns and represent a gold-mine for bespoke luxury offers.

7.   The Rise Of Luxury Consumer Tribes

South Korea is the home of global companies such as Samsung, LG, Hyundai and Kia. Clients in this country symbolize how emergent luxury consumption appears to be tribal in nature. These luxury tribes allow only their members to know about luxury events such as private sales and fashion shows. This unique phenomenon provides new avenues to the marketing of luxury brands.

How can this fascinating market be navigated? Yacht racing provides us with an appropriate metaphor to describe the current market situation. As in the America’s Cup, there are competitors and capital flows from around the world in the market; technological breakthroughs emerge from time to time, regulations may be influenced by actors to a certain extent, and the weather conditions are akin to the ever-changing facet of the market in its economic, regulatory and demand components. Some competitors are more powerful than others, but each team has a chance of winning a race if it makes the best use of its equipment and skills and if it has a little bit of luck on its side. People are what will ultimately define who achieves lasting success.

Jonas Hoffmann is Professor of Marketing at SKEMA Business School and co-editor of ‘Global Luxury Trends’ (Palgrave-Macmillan) with Ivan Coste-Maniere.  

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