Luxury labels go east
Emerging market buyers come to the fore
English may be the art world’s lingua franca but, it is not the first, or even second, language of an increasing proportion of new collectors. Lisa King, international managing director of auction house Christie’s, said some of its best customers were now based in the emerging markets. She said: “Collectors in the Middle East, Asia and Russia now play an important part in auctions around the world.”
She said Hong Kong was important as the Asian hub for the global art world, where top international collectors congregate to compete for the best. Christie’s set up an office in Hong Kong in 1986. It is the auction house’s third-largest venue by sales value in the world, having overtaken Paris.
In January, luxury goods company Richemont, which owns brands such as Cartier, announced a drop in sales over Christmas and faces the worst market conditions in two decades. The announcement from the world’s second-biggest luxury-goods maker after LVMH Moët Hennessy Louis Vuitton confirmed the worst fears of an industry that had initially appeared resilient to the difficulties faced in other parts of the economy.
The story could have been worse. While the rising demand for luxury goods in emerging markets has not entirely compensated for the drop-off in traditional markets as some had hoped, sales to the burgeoning middle classes in developing nations have made up some of the shortfall.
This trend looks likely to continue. Although the emerging economies are set to slow, they are expected to be less affected by the downturn than developed nations. A report from management consultancy Bain & Company this month predicted that US sales of luxury goods would decline 15% this year and there would be a fall of 10% in Europe and Japan. However, luxury goods sales are forecast to grow 2% in the Middle East and 7% in China.
While a “made in China” label may be synonymous with mass-produced goods, luxury retailers hope their labels will sell in China. Bain points to the continuing growth of Asia’s “aspirational consumer base”. Mark McCombe, chief executive of HSBC Global Asset Management, said: “Robustness in domestic consumption has helped China to be less affected by the global financial crisis up to now. Combined with stimulus measures from the Government and the banking system, China is an integral part of the global turnaround.”
Claudia D’Arpizio, a Bain partner and luxury goods specialist based in Milan, said the rise of a new generation of affluent consumers in emerging markets had led to a surge in luxury goods consumerism. She said: “Changing values and consumer habits are creating tremendous opportunities for brands to win new customers and strengthen their relationships with existing ones. While today’s economic turbulence is requiring a hard look at costs, luxury goods producers would be wise to also keep an eye on newly affluent emerging markets.”
Many are doing just that. Last month, Riva, a subsidiary of yachtmaker Ferretti, launched a Russian language website. Alexis Graber, founder of jet-charter company Avolus, said eastern Europe and Russia were increasingly important to his company. Aston Martin is growing in the Middle East, and plans to expand in China and Russia. Chanel has expanded in the Gulf region, with a new range of watches for men. Gucci opened in India in 2007 and now has stores in Bangalore, Delhi and Mumbai. Louis Vuitton scrapped plans for a Tokyo flagship, but maintains that emerging markets are crucial.
David Tydeman, chief executive of UK-based Oyster Marine, a yacht broker, said weak sterling was helping business: “We are now seeing around 50% of enquiries coming from emerging markets, up from around 25% in 2007, in places like Singapore, Ukraine, Turkey and Belarus.”
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