James Lawson, director of Ledbury Research, shares the key market insights that characterised the luxury industry in 2011.
The Story So Far
Following strong performance in 2010, luxury momentum was sustained throughout the first half of 2011. Growth forecasts remain in double digits going into 2012 – Ledbury forecasts growth at 16% for 2011 and a 11% for next year. That said, greater caution is advised in the short-term, as certain segments still have some way to go, before demand fully recovers from the effects of the economic crisis.
Using the year-on-year quarterly figures of the key segments of the luxury industry, we can see that luxury has been in positive terrain since the start of 2010. Particularly strong results in 2010 made for more challenging comparables, however, performance has held up relatively well, with double-digit growth for the first two quarters of 2011.
Asia has been central to this growth, however other regions – such as South America – have also emerged this year as promising markets for luxury. Europe and the US, while still not fully recovered, are expanding again and the Middle East also showed positive movement over the period. Notably, Japan withstood the effects of the March earthquake better than expected and posted growth, following several consecutive years of contraction.
“ Going forward, luxury executives are upbeat about performance and it is anticipated that China will continue to drive this ”
Looking to the Future
Going forward, luxury executives are upbeat about performance and it is anticipated that China will continue to drive this. Separately , research undertaken by Bain & Co and Altagamma, suggests that the global luxury market will expand to €191 bn in 2011 – up from €173 bn in 2010 – and mark the second consecutive year of double-digit growth for the luxury industry.
Regionally, Europe currently accounts for the largest share overall (37%), however this will shrink due to rapid growth in Asia-Pacific, which currently holds 17% of the market. China (€9.6 bn) is now bigger than that in the UK (€9.0 bn) and is being driven by demand for luxury cars, hotels and, personal luxury. China will grow to €12.9 bn by the end of the year. Brazil meanwhile, is a small (€1.9 bn) market, and is forecast to increase to €2.3 bn by the end of the year. Luxury demand there will be characterised by demand for fine wines.
A Star Performer: Swiss Timepieces
Demand for Swiss watches recorded strong growth (22%) in 2010, following significant declines in 2009 (-22%). The resurgence in watch consumption was driven by Asia, where luxury watches are frequently bought as gifts. In total, the region accounted for more than half (53%) of global demand, and registered a 35% uptick on demand in 2009 (FHS). In addition, the average Asian consumer purchased more expensive watches than their counterparts in Europe and the US (FHS).
Growth in Europe (10%) and America (15%) was positive, however, sales in Europe have not yet returned to pre-crisis levels. Further, 2009 saw a 36% contraction in American sales, thereby making for a relatively easier base for comparison in 2010. That said, luxury watches are expected to sustain this momentum in the near future and indeed pegged to be one of the star performers of 2011. Many luxury brands are expanding into this segment as a result.
“ The average Asian consumer purchased more expensive watches than their counterparts in Europe and the US ”
Challenges Ahead: Yachts
Sadly, the same levels of performance optimism cannot be seen in the case of Yachts, with sales expected to fall again this year – albeit to a much lesser extent than in 2010.
The declines of the past 2 years are largely attributable to a fall-off in demand from the US, which has historically been the biggest market in regional terms, and also Europe where there has long been a tradition of yachting. Demand is not expected to pick up in either market again until there is more economic certainty.
Another compounding factor in the yachting industry is that, unlike many other luxury segments, where Chinese demand has cushioned the fall in demand from the West, yachting in China is still in its infancy. Currently, there is no culture of yachting in China, and it is mainly the Hong Kong Chinese who enjoy the past time. This is expected to change, and the past two years has seen several Chinese yachting brands launch to cater to domestic demand.
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