Amidst the backdrop of globalisation and changing consumer purchasing habits, Added Value investigates whether Europe has lost its luxury edge.
In the past 20 years, the rise of luxury and wealth in emerging markets like China, Russia, and India is indisputable. LVMH’s annual report reveals that Asian markets account for a full 37% of sales versus 30% for Europe and 23% for the US. Apple, probably the leading “luxury” brand in the tech space, has seen Greater China overtake Europe, becoming the brand’s second largest market in the past year (not to mention that Asia is Apple’s number one region, ahead of the Americas).
And the numbers may even paint a rosier-than-warranted picture of who luxury consumers actually are. According to Bain Consulting’s “Luxury Goods Worldwide Market Monitor 2014,” half of Europe’s luxury sales come from tourists who originate from outside the region.
“ There is no question that globalisation is pushing luxury brands to incorporate other cultural influences into their creative mix ”
Beyond market economics, the creative process – so critical to conveying and delivering luxury – is also increasingly turning to non-European influences. While this is difficult to measure, there is no question that globalisation is pushing luxury brands to incorporate Asian, Indian, Arabic and other cultural influences into their creative mix.
Traditional European taste begins to seem conservative and risks irrelevance in luxury growth markets. As an example, we’ve witnessed wine and liquor makers court the Chinese consumer with artwork and packaging influenced by Chinese luxury design codes: red, gold, metallic, embossing.
And there’s a psychological component as well. A steady negative news flow from Europe: economic woes, aging population, political risks, cultural identity issues, can’t help but dull a bit of Europe’s luster as the crux and birthplace of luxury.
The shifting marketing focus to the “new” world of luxury is happening and marketers are looking even further, to more emergent markets, like South and South East Asia, Central America, and Africa – while partly or seemingly completely ignoring the old continent.
Despite what appears to be dire circumstances for the historic bastion of luxury, the argument for European decline is misleading. For reasons economic, strategic and experiential, what happens on the European luxury scene remains key to defining the whole concept of luxury in today’s world.
“ The global luxury market has tripled in the past 20 years, growing from $73 billion to $223 billion ”
Signs The European Luxury Market Is Alive & Well
Going back to the Bain analysis, the global luxury market has tripled in the past twenty years, growing from $73 billion to $223 billion. Within this, the top four European economies represent over $60 billion (27%) compared to $23 billion for China, $7 billion for the Middle East and $5 billion for Russia. Notably, France and Italy, whose economies are 30-40% smaller than Germany, have luxury markets which are both 50% larger than the Germans.
This is not just tourism’s doing. According to Bain, the US Luxury market is 0.35% of total GDP, Japan (notoriously big for luxury) is spending 0.43%, while the top four European countries spend 0.57% of their GDP on luxury goods. These spending priorities can be attributed to deeply ingrained cultural values, such as attention to the details, passion for true craftsmanship, the savoir-faire, the refinement.
Though we see luxury spending in emerging economies increasing, the real question is whether these economies have the deep-rooted cultural values around luxury to sustain a high level of spending over time.
European Luxury Companies Remain Unmatched & Central To The Global Luxury Market
Fact is that the distribution of luxury products is still controlled by European firms and brands. It is hard to find a non-European name to compete with the likes of LVMH, Richemont, Kering, Luxottica, Rolex, Swatch, Hugo Boss, Chanel and Hermes. Only US giants Tiffany, Ralph Lauren, and perhaps a few others, come close to being their equals. Not only do these firms have the highest sales, but they also attract the creative talent, control the distribution channels, and own the luxury advertising space – critical forces shaping the concept of luxury.
European Luxury Houses Still Set The Standards & Define The Rules
As always, numbers aren’t the whole story. The signifiers of the luxury industry are a subtle combination of distribution, as discussed, creativity, craftsmanship, and the managing of a particular type of consumer aspirations. On all four counts, Europe dominates the industry, much as Silicon Valley dominates global technology.
For one, the DNA of European creativity is rooted in a long history of cultural blending. Thanks to its history and geographic position, Europe is the ultimate cultural melting pot and brings all those cultural influences to bear on its conceptions of luxury, as do European consumers in their assessment of it.
“ While quality craftsmanship can be found in pockets around the world, Europe has a culture of technical excellence ”
When it comes to craft, while quality craftsmanship can be found in pockets around the world, Europe has a culture of technical excellence, versus the focus on productivity that prevails in most other regions. Swiss watchmaking has no technical equivalent worldwide. French wines, with their focus on uniqueness, will always be in a different category from New World wines, which depend on technology to produce “reliable” quality. European consumer expect an unparalleled quality of workmanship that luxury houses must live up to in order to continue being perceived as luxury.
Finally, given their sometimes centuries-old history, these brands and companies have the unique ability to excite the luxury aspirations of both existing and new customers. They carry within them a deep reservoir of symbols, associations, traditions and, practically, historical artifacts to draw upon in constructing meanings of luxury that have rich and resonant cultural roots. The European consumer shares a cultural vocabulary with these brands and companies that renders these symbols especially potent.
So we see that despite the growth of emerging luxury markets, European brands will continue to exercise their “soft power” and command long-term influence in the luxury space. While new-market consumers represent an important, albeit tactical, opportunity for the leading European Luxury brands, enticing, captivating and satisfying the European consumer will continue to be critical in ensuring luxury’s prominence into the future.
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