Almost a decade ago, international luxury brands were lured by the nouveau riche of Central & Eastern Europe, who made their fortunes in real estate, retail, energy and corruption, especially major contracts with State authorities for infrastructure. Most of the Eastern European luxury markets such as Ukraine, Romania, Serbia or Bulgaria have been heavily reliant on local consumers while the Czech Republic and Hungary established themselves as luxury shopping destinations, with less than 30 percent locals as luxury consumers.
Conservative markets with a lesser affinity for luxury branded products and with very limited tourism, such as Poland are now emerging as solid luxury markets where wealthy locals now spend not only on luxury cars and housing but also fashion, accessories, jewellery, watches, Spas etc. According to a research by CPP Luxury Industry Management Consultants Ltd, Poland’s luxury market has almost doubled in value in the past 5 years alone, with leatherwear, accessories, watches and travel becoming the most dynamic sectors. Polish HNWI are now taking more expensive vacations to destinations they would not previously consider.
In sharp contrast with Poland, a similar sized market in the region, Ukraine, has been declining steadily in the past 3 three years due to an ongoing hostile macroeconomic and political environment. Strenous relations with both E.U. and Russia, have been slowly turning Ukraine into an enclosed market. With the regime change, over half of the millionaire of 10 years ago have now vanished, being replaced by those close to the current regime. However, even the latter, have less access to easy cash. With over 28 major international luxury brands present in Ukraine with mono-brand stores, the market will see a gradual downturn, with premium brands such as Michael Kors and local premium fashion brands overtaking the place of many luxury brands. The most affected luxury sectors remain: cars, fine jewellery, while the most stable are watches and leatherwear, especially shoes. As for international travel, Ukrainians still take exotic vacations and shopping trips yet allocate smaller budget for hotels.
Despite its size and potential, Romania‘s luxury market has been over-estimated with several luxury brands which have never had a long term feasible justification, but merely a whim of the franchisee, most often local companies run by entrepreneurs who saw primarily an social passport in owning and operating such a brand: Dolce & Gabbana, Roberto Cavalli (first line), Alfred Dunhill, La Perla, Ermanno Scervino, Escada andMoschino. Other luxury brands such as Burberry or Emporio Armani which have been poorly managed. Luxury brands with a stable performance, yet with slower growth remain:Louis Vuitton, Canali, Gucci and Max Mara. The most affected luxury sectors in Romania are watches, jewelry, cars and travel. Luxury watches and jewelry retailers have had to close locations and reduce stocks. Yet, the most evident sign of the decline of the market and the fact that it never had solid foundations is that, the international luxury menswear brands are being replaced by consumers with local tailors, none of which has any heritage, tradition or craftsmanship – Romania has never had a tailoring tradition.
After the ‘rush’to enter Romania, many international luxury brands saw the warning signs which Bulgaria presented and many have delayed indefinitely an entry: Louis Vuitton, Burberry, Prada etc. Much like in Romania and Ukraine, over half of the wealthy who made a quick fortune 5 to 10 years ago have now disappeared from the databases of the luxury stores, many preferring to shop at outlet centres abroad. In all three markets, the level of imported counterfeited products has exploded in the past years, driven by a very dangereous trend with ‘so called celebrities sporting counterfeit products and admit doing so, as being fashionable.
Unless, Kiev, Bucharest and Sofia take immediate measures to boost tourism and re-position as premium destinations, thus attracting wealthy travellers, in the next three years we shall see at least half of the existing stores closed and a re-aligned market. Another solution for Bucharest and Sofia would be the business model succcessfully implemented in Warsaw and Kiev – department stores. Kiev’s Sanahunt luxury department store remains for over a decade a statement of exceptional luxury retail management, having been able to maintain its performance without any compromise.
As for Serbia, macroeconomics, coruption and politics have stiffled its promissing luxury market, with a constantly decreasing buying power. Without a shopping center dedicated to luxury, ideally a department store to re-group all existing luxury brands, the future is gloomy. Most affected luxury sectors remain: cars, watches, jewelry, fashion and accessories. Wealthy Serbians still travel abroad for shopping, but mostly to outlet centres in Italy – last year, outlet operators in Italy included Serbia in the top 10 nationalities of most loyal consumers.
Oliver Petcu at cpp-luxury.com