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China remains the star luxury goods market, Russia fuels growth in the auto sector, and India’s latest round of FDI legislation has little impact on luxury brands
Despite prevailing pessimism when it comes to the world’s economic outlook, Euromonitor International believes the global luxury market will expand by more than 7% in 2012, exceeding $302 billion (Just-Style). The four biggest markets remain the US, Japan, Italy and France, accounting for almost half of total luxury goods sales in value terms in 2012.
But the BRICs continue to grow at a far higher rate than that of their established counterparts. According to Euromonitor, Brazil, Russia, India and China account for 11% of global luxury sales in 2012 by value, which will grow to 16% by 2017.
“China is the star luxury goods market with sales consistently outperforming the global market,” explained Fflur Roberts, global head of luxury research at Euromonitor International. “Sales of luxury goods in China tripled in value in the last five years, and by 2017, the country’s luxury market is set to double in value again. By 2017, it is set to overtake France, the UK, Italy and Japan, making China the second biggest luxury market in the world after the US.”
“ China is the star luxury goods market with sales consistently outperforming the global market ”
There has been much talk of a slowdown in China, a sentiment which gained significant momentum after Burberry lowered its profit expectations for 2012, which had a domino-effect on the share prices of luxury goods conglomerates such as Richemont, LVMH and PPR.
Burberry’s Chairman, John Peace, had previously warned in its most recent annual report that “China is slowing, some Eurozone countries will see recession, and the U.S. recovery is gradual.” His comments were echoed by CFO Stacey Cartwright, who acknowledged that Asian revenues were hurting do to a slowdown in gift giving (Forbes).
Though consumption could be on the wane, the strength of Asia’s wealth continues to gain momentum. The number of rich Asians surpassed North Americans for the first time last year, Capgemini and RBC Wealth Management (Reuters). The Asia-Pacific region is now home to 3.37 million high net worth individuals – people with $1 million or more to invest – and 17% of Asia’s wealthy are concentrated in China.
“ Car sales in Russia grew by 40% in 2011 to over 2.6 million vehicles. Insiders expect that figure to reach 3 million in 2012 ”
On the subject of wealth, Forbes estimates that Russia’s 200 wealthiest businessmen now have a net worth of $499 billion, where Moscow has more resident billionaires than either London or New York (The Moscow Times). As wealth continues its incline, so do the sales of automobiles – both luxury and otherwise.
Car sales in Russia grew by 40 per cent last year in volume terms to over 2.6 million vehicles, recovering most of the ground lost after they halved in the slump of 2009. Insiders expect that figure to reach or beat 3 million this year, according to the (Reuters).
“The situation is very different from Europe and the US, because you have a lot of people that have very old cars – or no car – (who) are entering the market for new cars,” Renault’s regional head Bruno Ancelin told Reuters. “It is a tank of potential customers that is still full and we have years and years in front of us to address this kind of customer.”
“ Rio de Janeiro has confirmed plans to build a total of 22 properties downtown, to host the FIFA World Cup & Olympic Games ”
In Brazil, all eyes are on Rio de Janeiro, which will host the FIFA world Cup in 2014 and the Olympic Games in 2016. If the 2012 London Olympic Games are anything to go by, these announcements will serve as catalyst to a flurry of economic development in the city, with key focus on luxury retail and hospitality infrastructure.
The city has confirmed plans to build a total of 22 properties in downtown Rio, including hotels from two to five-star classifications. These will add a total of 3,283 guest rooms to the city’s current capacity of about 30,000.
The mayor of Rio di Janeiro has already approved a $5 million project by François-Xavier and Jacques Dussol, to transform Le Paris – a former love hotel located in the centre of Rio – into a five star hotel with 21 rooms, a pool and a restaurant (Luxuo).
“ Recent amendments to foreign direct investment legislation in India won’t solve the sourcing problem for high-end luxury brands ”
And finally in India, its government has once again revisited Foreign Direct Investment policy, making it easier for international retailers like IKEA, Argos and Starbucks to set up wholly-owned stores in the country, but retaining the majority of sourcing clauses that make it difficult for provenance dependent luxury brands (Economic Times).
Foreign retailers owning more than 51% shareholding in stores, which sell products under a single brand, will have to buy 30% of the value of goods locally. But the latest laws mean that such sourcing does not necessarily have to come from micro, small and medium-scale enterprises, as laid down in an earlier policy announced in December 2011.
“They have only solved a part of the problem,” explained Aparna Mittal, partner at law firm Luthra & Luthra, to the Economic Times. “For those brands that are capable of sourcing from India, they have opened up a little bit of a window by liberalising who they can source from. But it doesn’t solve the problem for several other high-end luxury brands.”
The government will now allow global luxury brands and retailers, which operate worldwide through separate investment arms while owning the brand through family trusts, to invest in the country through either of these entities, unlike earlier. But most luxury brands will have to continue to work with an Indian partner (with a maximum foreign ownership of 51%), as the 30% local sourcing norm for companies in which foreign retail firms hold a majority stake will stay.
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