LUXURY REPORT: APAC keeps the global luxury market flying

Asia-Pacific overtook Europe as the largest regional luxury goods market in 2010. Demand continued to grow to a staggering 38 per cent in 2011, with China leading that growth. Even in the midst of a global recession, the region is still showing upward growth in demand for luxury goods. 

This highlights how resilient the Asian market is in comparison to those in the United States or Europe. This has also been reflected in the financial markets and featured in a recent HSBC report that downplayed expectations for market growth in the West, but remained positive for Asia. 

Cody Sacha, head of client solutions at Millward Brown Shanghai, notes that the Asian luxury goods market has increased from about 37 per cent in 2007 to 48 per cent overall. This has been at the expense of market share in Europe, says Sacha. 

This article appears in the Luxury Report in the  November 2012 issue of Campaign Asia-Pacific Subscribe online or call +852 2122-5227

Leading the pack in growth is China, followed by Japan and Singapore. While Indonesia has sur-faced as an emerging market for luxury, powered by its impressive economic growth, Malaysia and South Korea are showing increasing potential for luxury, albeit at a slower pace. 

The trend over the past three years in Southeast Asia was for most luxury brands to not renew their contracts with local partners or distributors. For example, Coach ended its partnership with Valiram Group in order to carry its own brand in Malaysia, and Prada did not renew its contract with Cipta Areco in Indonesia. 

The moves come about as the brands began seeing growing viability in these markets and were willing to risk it on their own in the region, according to strategic consultancy 360m analysis. 

In Australia, the luxury market is small in comparison to the US, Europe, Japan or China, according to 360m, and has stayed unchanged since 2011. 

India, according to the “stage of luxury evo-lution” articulated by brand and marketing strat-egists Radha Chadna and Paul Husband in their book, The Cult of the Luxury Brand, is in a very early stage of adoption best understood as ‘subjugation’, compared to Japan at the other extreme, where luxury is a way of life. “China is in between and at a phase called ‘showing off’,” says Sacha.

As a whole, all categories in luxury, from soft to hard and leather to automotive, are experiencing growth at the top end (connoisseur brands). Watches and jewellery are most popular when purchasing on credit, while clothes, bags and footwear, pens, cosmetics and perfume are all very popular in general, Millward Brown research shows. 

Further research from RTG shows an interesting factor — the most recognised and powerful luxury brands are the ones capitalising on this growth in brands catering to luxury connoisseurs. 

“If we remember that luxury will be a lot about how brands make the consumer look [to others], extra attention will be paid to visible categories,” Sacha says. For example, Hong Kong’s top luxury purchases made by mainland tourists are jewellery and watches, followed by clothes, leather goods, and then cosmetics and perfumes.

Luxury in Asia, however, is not immune to a weak economy, says Angelito Tan, co-founder of Robert, Tan & Gao. He sees a general slowdown in terms of sales and a loss of foot traffic in major luxury department stores. Consumers are becoming more cautious with their spending, especially among the middle classes — a key demographic segment for driving luxury growth. 

Sacha agrees. “We should not be so naïve as to believe or think that in hard times consumers will not tighten their purse strings. They will. This has been a common theme in the world and Asia when it comes to uncertainty in the future”. 

However, some brands such as Hermes and Prada are still showing strong growth despite the gloomy outlook. There could be a few reasons for these exceptions, explains Tan. One is that high-net-worth individuals (HNWIs) are still spending on luxury and driving demand for these brands. Meanwhile, brands such as Louis Vuitton and Burberry are capturing a wider audience, including a large chunk of the middle class, and are therefore experiencing a decline in growth across Asia with weakening economies. Simultaneously, as markets mature, more brands in every category arrive. This means mass market luxury brands have to not only deal with a weakening economy, but increased competition for the middle classes’ wallets.

It is hard to generalise about the luxury consumer in any continent, including Asia. However, if we have to, we can categorise consumers into consumption stages. The evolution normally starts with the nouveau riche, luxury status seekers, who move on to become ‘trendsetters’, who pride themselves on being an early adapter in luxury seasonal trends. With time and experience they become experiential consumers, placing new and unique experiences over brands. Finally, the connoisseurs are consumers who are knowledgeable and appreciate luxury from a lifestyle-intrinsic perspective. 

Interestingly, while the majority of Chinese consumers still strongly associate status with luxury, there is an increasing number of HNWIs moving up the consumer journey with time, becoming trendsetters and experience-seeking luxury consumers. This is evident with brands like Lanvin, which is experiencing double-digit growth in China this year, appealing to a more sophisticated and understated type of consumer. 

Sacha observes that luxury in China is linked closely to the development of taste, referring to the sense of consumerism and the insatiable demand for novelty and status that luxury brands bring to Chinese consumers. “This is easily seen in the plethora of not only female but also male lifestyle magazines which promote a certain kind of lifestyle linked to fine living and the fine enjoyment of a certain kind of taste,” Sacha says.

Amid all the new and old luxury brands coming into competition, the key to breaking through the clutter isn’t simply driven by innovative communications. Luxury brands looking to position to ultra-luxury must actually have the prerequisites of an ultra-luxury brand, living up to and delivering through their design, communications, service and overall brand experience. “You cannot trick any consumer in the long run, so it is important for brands to really be who they are,” says Tan.

The industry is also seeing a trend of Chinese consumers beginning to buy at home rather than going abroad to destination markets like Hong Kong. Tan puts this down to two explanations: “The first being that luxury brands in China have invested a lot into improving their retail experience including their overall service and CRM, that we finally see this paying off. In addition, as more consumers are moving up the luxury consumer evolution to being more experiential, they simultaneously make more spontaneously luxury purchases as opposed to planned purchase in other countries”.

Luxury brands will need very different strategies across Asia, Sacha states. According to Millward Brown’s 2012 BrandZ Top 100, in China and Japan, only two luxury brands, Prada and Chanel, have a strong position in both markets. “Pan-Asia strategies will need to be adapted to address these differences, which may cover media selection, retail strategy as well as fundamental brand messaging,” says Sacha. “Getting a consumer to know you in the first place versus reinforcing what you stand for can require very different marketing strategies.”

Nick Cooper, managing director of Millward Brown Optimor, believes that in order to achieve a balance between exclusivity and expanding audiences, luxury brands need to more clearly segment their product ranges, whether it is by age or price or gender, in order to preserve the aspirational appeal of the mother brands, as well as taking direct control of the customer experience through owned-stores networks. “Leading luxury brands are now enormous businesses in their own right, and have to reconcile the competing demands of the artistry and specialisation that created the brands in the first place with the pressures of managing and generating momentum for big business,” he says.