Luxury

In a week in which tributes to Roberto Cavalli are emerging, celebrating the man who created a true empire, eternalised in the most unique segment of retail, that of luxury. Combining under the same brand various business verticals that touched on diverse fields such as fashion, decoration, and hospitality in an ever-vibrant tone of exuberance, opulence, irreverence, and a common note, of his image. We have decided to temporarily interrupt our “battle” between sustainability and ultra-fast fashion, which we'll resume shortly, to dive into the lavish waters of luxury retail.

Luxury in Retail

Talking about luxury retail is to talk about a special segment of this industry, which centres on offering high-quality products, services, and experiences typically to affluent consumers, i.e. those with the purchasing power to buy them.

Many aspects make luxury retail special and desirable, both in the eyes of loyal clients and those who can't afford certain brands, but who certainly keep an eye on and dream about them. Dreaming doesn't cost anything, does it? Not yet, as far as we know, but with constant evolution, particularly in the field of artificial intelligence, who knows, maybe will soon be a tradable reality.

The motivation for what these exclusive brands represent and what they make us feel has an almost magnetic power, capable of setting trends year after year which become instantly widespread and almost viral throughout the retail industry, hides another, much darker reality.  Fuelled by the desire to own certain items from certain brands, many consumers who are unable to afford them find themselves in the nefarious world of copies (or counterfeit products). This can have a significant impact on brands and customers. Copies often imitate the designs and branding of high-end luxury products, intending to fool customers into believing they are buying genuine luxury goods, but we'll leave that for a future discussion.

Luxury retail, in a glimpse

In the retail industry, luxury refers to products or services that offer an expected high-quality experience. These goods are typically of high quality, largely tied to superior craftsmanship and design and generally distinguished by prestigious brands. Luxury retail encompasses a variety of categories, including fashion, jewellery, accessories, beauty and perfume products, household items and even cars. Quantifying the value of the luxury retail market in terms of money and percentage can provide insights into the overall economic impact of luxury goods and the segment's share within the broader retail market. However, it's important to note that market sizes and percentages can vary over time due to factors such as economic conditions, shifts in consumer behaviour, and global events. 

The luxury goods market is a multi-billion-dollar industry. The size of the market includes diverse luxury categories, as we know, and it's an attractive and upwardly mobile segment. In 2021, this market was valued at around 265 billion euros and it's interesting, but not particularly surprising, to learn that it was one of the first to show signs of recovery and growth, right after the COVID-19 pandemic. 

By 2024, the luxury goods market is expected to generate revenue of 346.39 billion euros and is expected to grow at an annual rate of 3.22 per cent, according to Statista. Globally, luxury goods may represent around 5-10 per cent of the world retail market in terms of monetary value and should continue to grow in the coming years, driven by increasing consumer wealth in emerging markets, growing interest in luxury goods among younger consumers and the continued innovation and diversification of luxury brands.

Geographically speaking, it's not surprising that the luxury retail market is heavily concentrated in certain regions, such as Europe, the United States, and parts of Asia, including, of course, the Middle East. These regions account for a significant proportion of luxury sales and are home to many of the world's leading luxury brands. 

A special note for emerging luxury markets, which some of our client brands have been focusing on. These refer to regions where demand for luxury goods and services is increasing due to factors such as economic growth, rising disposable incomes, and changing consumer tastes. These markets offer opportunities for luxury brands to expand their presence and tap into new customer bases. 

Given this whole conjuncture, we believe that this is a very interesting time to take the step towards expansion and internationalization. For brands in general but in particular for those positioned above, the signs are clear and the market players are moving: either by creating and launching more up-level segments in their product portfolio or by merging or acquiring companies that create or complement their businesses.

Here are some emerging luxury markets that stand out for their appetite and growth potential and that must be kept on the radar:

Brazil is the largest economy in Latin America and its luxury market has seen growth due to the expansion of the middle class and the increase in wealth of high net-worth individuals. Luxury brands are taking note of this market's potential.

Overall, luxury retail in Latin America's Spanish-speaking countries presents great opportunities for growth and expansion. Brands that can effectively cater to local tastes and navigate the region's unique challenges may find success in these emerging markets. At the top of the list are Mexico, Colombia, Panama, Chile, Argentina and Peru.

Africa: Although the luxury market in Africa is still relatively nascent, some countries such as South Africa, Nigeria, Angola, and Kenya have been seeing a steady increase in demand for luxury goods for several years. 

The Middle East, especially the Gulf countries such as the United Arab Emirates (UAE), Qatar and Saudi Arabia, where the instability of the current situation does not seem to have markedly affected the economic sector nor the pursuit of brands, is known for its high demand for luxury goods. The region's affluent population values luxury products and experiences.

Southeast Asia and the giant China: Countries such as Vietnam, Indonesia and Thailand are experiencing economic growth and urbanisation, which is driving demand for luxury goods. These markets offer opportunities for luxury brands to establish a presence and satisfy an emerging affluent consumer base. China remains one of the fastest-growing luxury markets in the world. Its affluent consumer base is expanding, and luxury brands are making significant investments to appeal to this consumer. Across Europe and the United States in particular, major brands are investing in qualified human resources to cater for them.

Last but not least, Russia has historically been an important market for luxury retail, especially due to its sizeable population and the concentration of wealth in large cities. However, the current economic and geopolitical environment has introduced several challenges that could have an impact on the luxury retail market in Russia. It appears on this list because what is being noticed all over the world is that various regions of the world, particularly the Middle East and some European countries, are being greatly impacted by the arrival of large numbers of Russian citizens with high purchasing power, which has an obvious and very visible impact on the luxury retail market in those same markets.

We'll certainly revisit the topic of luxury retail several times, but the article is already long, so we'll now pass the word on to you, the reader: What's your opinion? Is luxury retail a segment that is a sure-fire bet for success? Share your opinion with us by emailing geral@retailmind.com with "Detail in Retail" in the subject line.

Source: Statista