Asia-Pacific — A Promising future for the Global Luxury Industry?

A steady global economy, elevating trade tensions, emerging large markets, rapidly changing consumer trends, the growth of boutique luxury brands and the massive shift from physical to digital are creating a new competitive landscape for the Global Luxury Industry, one which it still has to figure out.

Over the last few years, the Global Luxury Industry has seen a plethora of challenges and as some have welcomed a breathe of transformation unveiling the soul of their brands to a whole new set of consumers in emerging markets with the help of digital transformation, others are still struggling with their old methods and high-egos.

According to a report published by The United Nations, the Global Economic Growth is expected to stand still at 3% in 2019 and 2020, amid rising downside risks that could hamper development and expansion in advanced economies.

According to an insights reports by Jim Glassman, Managing Director and Head Economist at JP Morgan Chase & Co., the global economy’s outlook appears much brighter. “Fiscal stimulus measures kept China’s growth on track, and a resolution to trade disputes seems imminent. Brexit is still creating uncertainty across Europe, but no other nations have decided to leave the EU. And while the rate of absolute growth in Europe and Japan remains underwhelming, unemployment and real GDP measures indicate a robust economic expansion.”

Amongst the developing economies, East and South Asia regions remain on a relatively strong growth trajectory, amid robust domestic demand conditions. Indications of stronger growth in emerging markets like China, India, Korea and others propose a brighter future for the Global Luxury Industry, only if it could welcome a change in the strategy for capturing a bigger share of consumers in these geographies.

Although historically the industry has operated on a”West versus the Rest” basis, recent trends underline the growing importance of Asia Pacific, the Middle East, South-East Asia, Latin America and Africa.

Rising prosperity in major cities and growing formal market power over the black market will ensure sustained Rest of the World (ROW) demand for luxury goods.

To succeed in emerging markets, luxury players should focus their investments on digital connectivity, new and unique inclusive experiences, live events and luxury travel experiences, upwardly mobile consumers and bold business models, which are key components of the personal luxury industry today.

The growing importance of non-western markets for the luxury goods industry needs to be supported by

• advanced supply chain leadership,
• technological innovation, and
• international investment.

These factors will help maintain further strong growth in these geographical markets.

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The Millennial State Of Mind and Loyalty

The rise of the millennials had posed a bigger challenge for the industry. While it had just adjusted to the changing demographics, changing behavioural trends has become a new challenge. For millennials, the emotional and personal context within which luxury brands appeal to consumers has widened considerably. They are not just attracted by the historic design and craftsmanship value of the brands anymore, they look for more inclusive, customised high-value experience across all channels.

Collectively millennials and Generation Z will represent more than 40 per cent of the overall luxury goods marketby 2025, compared with around 30 per cent in 2016.

The future success of the industry will depend on its success in permeating and proactively reaching out to the younger generation. A good communication strategy coupled with a unique live marketing approach can be a lever.

Luxury lifestyle brands like Gucci, Cartier, Dior, LouisVuitton, Valentino, Burberry, Bvlgari, MercedesBenz, Jaguar Land Rover, BMW, Rolls-Royce Motor Cars and others need to widen their approach and seek to change their business models in order to meet this emerging demand in large emerging markets (like India, China, Hong Kong, South Korea, Japan, Middle East Asia) while offering a number of loyalty programmes and invitations to highly exclusive, private events where these brands can benefit from a halo of creative energy, retain existing consumers and also gain new consumers by being the most consumer-centric brand out there.

Regional Outlook

China — Chinese luxury consumers represent a high proportion of the global luxury market and the rapid rise of a more affluent and fashion-savvy middle class is bolstering luxury consumption. In terms of per capita spending, China is one of the leading countries, thanks to the rising purchasing power of young millennials and Generation Z.

India — After a year of disruption and slowdown in growth, the Indian economy is consolidating gains from recent reforms, and it is expected to stabilise in the course of this year, and maintain a positive trend in the future. Forecasts for inflation and economic conditions are good, with the prospect of generalmacroeconomic stability. In India the luxury goods sector is still in the early stages of development, with a slow but constant growth and presenting many opportunities for investing companies. Demand for luxury goods is expected to remain strong over the next year, although there will be challenges, one of which is yet to gain the government’s support regarding tax policies. The positive economic prospects for the country seem sufficient for a rise in aspirations among urban consumers with higher disposable income to invest in luxury products.

Japan — Japan’s luxury goods market, one of the largest in the world, is growing steadily again, after a long period of global and domestic crisis, and is expected to grow further over the next years thanks to rising consumer confidence and the purchasing power of the younger generations, creating prospects for an increase in spending for luxury goods. Moreover, purchases by inbound tourists have a substantial effect on sales in the luxury goods market, and as the number of tourists is expected to rise in the coming years, a boost in the luxury market is expected too.

Middle East — Geopolitical tensions, conflicts, and shrinking oil prices are the main factors putting the stability of the whole area at risk. Oil prices are set to stay firm thanks to an easing of fiscal constraints and there are expectations of reforms across the region, favouring economic growth. While being a go-to travel destination, The Middle East itself has one of the largest young populations in the world and millennials in the Middle East are richer than the average and their willingness to buy is stronger. Addressing the new Arab luxury audience represents an opportunity to create brand loyalty, fuel luxury spending, and foster market growth.

United Arab Emirates — Keeping with the general slowdown in the region, the critical situation of the luxury market in the UAE is also due to a fall in demand resulting from the country’s rising rent and education costs, as well as from a newly-introduced Value Added Tax from January 2018. The high costs of rents and education, added to the uncertainty in the job market, are the main reasons for consumers to save money and reduce their frequency of purchases. Therefore, competition among players is very strong, intensified by the growth in online shopping. With weak performance in the last two years, forecasts for the future show positive trends for the luxury industry as the market matures and adjusts to incoming challenges in global trends.

Growth in South Asia accelerated to an estimated 6.9 percent in 2018 from 6.2 percent the previous year, with domestic demand strengthening inIndia as temporary disruptions fade and the benefits from ongoing structural reforms start to materialize.
The recovery was in line with expectations, and recent high frequency data–including purchasing managers’ indices and industrial production–have broadly remained solid.

India’s GDP is forecast to grow by 7.3 percent in FY2018/19 and 7.5 percent thereafter, in line with June forecasts. Private consumption is projected to remain robust and investment growth is expected to continue as the benefits of recent policy reforms begin to materialize and credit rebounds. Strong domestic demand is envisioned to widen the current account deficit to 2.6 percent of GDP next year.

The outlook for South Asia is robust, despite the financial stress that has affected a number of EMDEs and continued trade disputes.

In conclusion, as the Global Economy sees a sluggish growth, especially in the western markets, the Asian markets pose to be more resilient to the incoming economic challenges in the near future with their stronger growth trajectories, easing trade tensions and a projected rise in the per capita income owing to the entrepreneurial upsurge in the region with new players entering in the millionaire’s category having more disposable incomes to splurge on luxury goods and services, generating more demand for brands that have the agility and ability to embrace these challenges and pave a shining future for themselves in the medium to long term.

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