New Feature (just out today!) "Inside the luxury category with The Luxury Guru, Lorre White" in The Top Tier Magazine
The luxury industry can be considered one of the most complicated for business to navigate. While the luxury consumer has boatloads of disposable cash to spend, they are not the simplest to sell to. Statistics will show that luxury buyers are the most organic demographic with constantly changing behaviors.
A recent article pointed to a shift in quality preference over brand prestige in China. Are luxury shoppers becoming more concrescence of their spending? We asked Lorre White, The Luxury Guru for her thoughts on this always changing category:
TheTopTier.net: There has been a lot of conflicting information coming from Asia. While most analysts would suggest that we are heading for a luxury spending slowdown, the numbers from major luxury brands seem to indicate the opposite. What’s The Guru’s take on the luxury market situation in Asia?
Lorre White: One article says China is rapidly growing; the next gives statistics of how it is contracting. It is a mistake to view China as all or none on the world domination of the luxury market. China is a huge, complicated market with continental-size diversity. I think most of the reports about China being weak, is comparable to the child's fable of Chicken Little "The sky is falling". I do not pay much heed in the alarmist's articles; I think they believe a negative attitude will garner more readers. First of all these reports are often written bygeneral journalists, not specifically trained in the luxury/UHNW sector and so the reports are often erroneous or misunderstood. For example, when someone in the sector says "affluent" it conjures to someone not trained in this sector great wealth, where in actuality the term affluent means someone with an annual income starting around $75,000. Life is not stagnant, it is always changing and morphing, that does not necessarily mean switching from good to bad. As the Chinese country matures in the new era of more economic success and exposure to western luxuries, it will go through a great deal of change. It will start with the largest cities and move through the China to the smallest. China is complicated and the truth lies between the extremes. Luxury companies cannot allow themselves to see a crisis where it does not exist. In the long run, China’s sheer size in economy, population, and as a percentage of global consumers spending—will continue to increase. Even a small portion of China’s overall market is bigger than many markets’ total size.
Chinese consumers now account for about 27% of all global luxury purchases, but almost 60% of those purchases are made outside the mainland. Luxury brands see their sales experiencing dips on the mainland, but are more than making up for it in their stores elsewhere. Smart companies are now differentiating between the “China Market” and the “China Demographic.” Any attempt to simplify it as an unstoppable force or a luxury market about to collapse is bad strategy. To be sure, there are challenges and hurdles to its continued meteoric rise, but it is equally true that long-term prospects for China as a luxury consumer culture are positive.
One of the reasons that many people that work in the luxury sector follow my luxury news posts www.LuxGuru.Typepad.com is that I weed out all those features that are erroneous.
TTT: Luxury brands continue to focus on mobile apps and marketing. Are they doing a good enough job engaging HNWI’s and other affluent groups? Any examples of effective campaigns?
LW: The less expensive the luxury the more it relies on the aspirational consumer. For example Prada relies on the aspirational consumer for 80% of its sales and Gulf Stream Jet relies on a pure UHNW sector and/or corporate sector for 100% of their sales. Social media is most effective on the lower price point purchases. The wealthier the individual the less they interact on the web, this does not mean the less they use it. It simply means the wealthier the individual the less of a foot print on the web.
Different social media attracts a different age brackets. For example Twitter has a younger and less affluent market than FaceBook. So for products like cosmetics, perfumes, hair products and fashion, Twitter is a powerful resource and brands like Burberry, Chole and Dior that target the younger affluents do a great job with their social media. In the car sector Bentley and Jaguar are doing a great job. Retailors like Nordstroms and Neiman Marcus are leading in their successful social media reach. Using social media in the luxury sector is particularly effective in reaching and engaging the earlier stages of the wealth populace. Luxury brands and retailers created their own hash tags and sharable content for fans to spread with their peers. The most effective campaigns were those that engaged followers in a conversation about the brand.
TTT: Austerity seems to be a buzz word these days. Do you think personal wants and desires will always outweigh what’s practical?
LW: Absolutely, since the earliest recorded history this has been the case. The UHNW sector does not have to deal with what is "practical" like the lower economic sectors. The UHNW are global citizens that are not tied to any one specific nationality or region. They have multiple multi-million dollars homes on several continents. They are not affected by the micro elements, as they just move to where suits them best. For the UHNW there is no austerity; they do not have to decide between luxuries, they can enjoy them all. The UHNW that are the sole purchasers in the elite end of the luxury sector, things like private jets, yachts, etc., are not affected by the day to day middle class issues of the economy to such a degree that it changes how they live. The luxury market has never been stronger globally.
The number of Ultra High Net Worth Families is growing. Knight Frank, forcasts the UHNW to to grow from almost 200,000 households globally now, to 300,000 in the next decade. Just in the past year their fortunes are up by $566 billion (about the GDP of Saudi Arabia). The estimates on how big the UHNW are in overall dollar terms is between $26 trillion and $70 trillion.
There are not many media sources that successfully reach the UHNW because they carry aspirational sector news. For the UHNW time is their rarest asset, and they do not want to be on media that wastes their time. My luxury news "Lorre White, The Luxury Guru" (www.LuxGuru.Typepad.com) covers the high end of the luxury sector that is relevant to them.
TTT: We’ve established that certain markets are hot for luxury. What are your thoughts on the situation in Europe where most luxury brands originate?
LW: 75% of the elite luxury brands globally are European. The luxury sector is very much dominated on the production side by the Europeans. However, Europe has been maxed out on the consumption side of the equation and they rely on growth countries like the BRIC countries for future expansion. The USA is also a powerful growth area as they are already developed (wealthy) and are only at about 37% of their luxury consumption potential. The US is a large growth potential for luxury brands where the cultural affects are already understood. The US and China are really the most powerful immediate potential areas for the luxury sector.
TTT: Demand for luxury travel has shown unprecedented growth. Are there any categories that you feel are going to be key in the next few years?
LW: Experiential luxury travel is the fastest growing division within the travel sector globally. Experiential means travel that usually has an educational component; Learning about wines in France, cooking schools in Italy, race car driving school, historical locations, etc.,.
The China market will reach 100 million outbound travelers by 2020, making it the largest in the world. Chinese travelers focus more on shopping, as opposed to Westerners who spend on food, accommodation, and “experiences.”
A recent report in Jing Daily from Sage Brennan of China Luxury Advisors emphasizes the point: "Brands should take advantage of Chinese consumers’ newfound obsession with travel to communicate and showcase their brand heritage and culture in ways that are not possible in China, with its glitzy-glass-and-marble retail environments and ubiquitous luxury fashion shows. Chinese consumers are hungry to learn and experience history and heritage and understand luxury brand quality and workmanship. Utilize these assets to give your customers a truly unique experience that they cannot get in China. They will love your brand all the more for it, and reward you with higher spending across the globe..... In other words, “Ms. Wang” may buy one LV bag per year in Shanghai but three in Hong Kong, four in New York, and six in Paris."
TTT: Thank you your thoughts. It appears that ‘luxury’ isn’t going anywhere and the desire for luxury goods and services will always be part of the economic picture.
Lorre White, has been a international luxury marketing expert for two decades and is the founder of White Light Consulting an international luxury marketing consulting firm working with luxury brands to reach the world’s wealthiest 1%. She is the founder of a luxury blog with an exclusive UHNW followingwww.LuxGuru.Typepad.com and the only internationally recognized luxury media personality “The Luxury Guru”. Lorre frequently contributes to luxury magazines globally, including having had her own monthly column in Portugal’s #1 rate luxury magazine. For more information just Google her name.
Note: Chicken Little, is a folk tale with a moral in the form of a cumulative tale about a chicken who believes the world is coming to an end. The phrase "The sky is falling!" features prominently in the story, and has passed into the English language as a common idiom indicating a hysterical or mistaken belief that disaster is imminent. Versions of the story go back more than 25 centuries and it continues to be referenced in a variety of media.
By Doron Levy