Luxury Market

Topics: Luxury good, LVMH, Gucci Pages: 16 (4001 words) Published: May 27, 2013
• Cognizant 20-20 Insights

Luxury Retail’s Evolving Landscape
Executive Summary
The luxury goods market may appear to many as a recession-resistant industry that generates over $1 trillion in revenue, but a closer look at the figures suggests otherwise. Luxury retailers, which were growing 9% annually a year before the recession, saw sales drop on average by more than 13 percentage points from 2007 to 2009. Meanwhile, luxury manufacturers saw their revenues decline by an average of 21 percentage points.1 The major industry brands have since overcome their tepid performances and reported strong revenue gains, defying all signs of a turbulent market in 2011. But the recession seems to be the game changer for a range of consumer behaviors that could be magnified in the coming days. And these changes could potentially redefine the business model of the successful luxury retailer over the near term. With the advent of social media, the rise of emerging markets and a refined and informed generation of millennial consumers, the meaning of luxury is blurring. It is no longer sufficient for a product to exhibit rarity. Luxury products needs to exhibit uniqueness coupled with product superiority and originality, providing value for money in today’s frugality-minded reset economy. This paper focuses on how the movement of the industry’s target segment from classes to masses is affecting the luxury market and the imperatives for retailers that wish to maintain or gain market share.

Spanning the Globe
Consensus opinion of economic experts suggests that Europe is slowly sliding back into recession. However, the revenues of retailers in this region have been fueled by tourists from Asia and China who shop in Europe to purchase high-end brands at lower prices. The U.S. appears to be recovering a bit faster. In the luxury segment, product categories such as shoes, apparel and leather are fast regaining momentum in the U.S. The market for luxury goods in Japan, meanwhile, has eroded since 2007 (showing a 3% decline in revenue), mainly due to a demographic shift.2 The reason: luxury consumers from the ‘90s are either retiring or becoming more conservative (due to a two-decade-long recession), thus leading to a reduction in luxury spending. One of the fallouts of the financial crisis is the fact that APAC is gaining significant relevance as a result of the rising incomes of affluent households. China has emerged as the clear winner in terms of growth for luxury items, mainly due to a rising middle class that has exhibited a demand for “aspirational” products. A big allure for luxury retailers has been the wealth accumulation in China. In fact, wealth has slowly percolated from China’s large coastal cities to smaller cities in the north and west. The luxury market in these regions is concentrated in menswear and business gifts. The idea of luxury arose from product attributes such as rarity, craftsmanship and exclusivity to the individual. Most clothing, jewelry and acces-

cognizant 20-20 insights | april 2012

The Evolving Luxury Landscape
Drivers for Consumers
Combination of utilitarian and hedonist attributes (2000 onwards). Era of Diversification Strategy of diversification with focus on select high quality products.

Era of Consolidation Revitalization of luxury with use of celebrities to create an aura around brands.

Appeal to emotion, charm and better lifestyle (1985 – 2000).

Era of Exclusivity

Materialistic view of exclusivity (1970 – 1985).

European family businesses centered around craftsmanship. Wave of consumption of luxury goods in Europe. Influx of capital, emergence of companies like LVMH, Hermes and Prada. Increased consumption of luxury in developing economies, financial crisis and perils of recession looming on consumer mindset.

Trigger Points

Figure 1

sories brands like Hermes, Louis Vuitton, Chanel and Moët-Hennessy started as small family businesses in Europe centered around creative...
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