The countdown to Fashion Week for New York, London, Milan and Paris, the capital cities of style, has begun. But even as the lights and cameras return to runways next month, the real action within the luxury goods market remains in Asia, the dominant marketplace for all things high-end.
Buoyed by strong economic growth and a burgeoning albeit aspirational middle class, Asia’s emerging markets are responsible for driving growth in the luxury goods sector, and is poised to become the hub of luxury retail in the years ahead. A study titled ‘Rich Pickings,’ by the Economist Intelligence Unit (EIU) predicts that within a decade Asia is expected to account for half the global luxury revenue, compared with one-third today.
Predictions aside, anyone familiar with Asian megacities can vouch for the massive transformation in the retail landscape within this region. Whether it’s Beijing or Bangalore, malls and shopping plazas in these markets no longer ape the West but are at par with the retail environment of mature markets. Moreover, luxury malls and hotels, a concept unfamiliar to most Asian cities until as recent as a decade ago, have now become an intrinsic part of the retail setting thanks to the luxury brands that have come knocking.
Richard Mille, the luxury watch brand for example, picked China’s capital city Beijing to launch its largest retail store. Mille set shop in a 260 square-metre space in the city’s Legendale Hotel, a building whose exterior is described to be, ‘reminiscent of the 17th century architecture of Southern Europe.’
Why then did the French watchmaker of the Swiss timepieces choose China to set up its flagship store?
Perhaps for the same reason that Italian fashion house Prada chose Hong Kong to hold its initial stock market listing, rather than in its own fashion capital Milan. Prada’s move, obviously successful, set the tone for other plush brands such as Coach, L’Occitane and Samsonite that followed suit with IPOs in Hong Kong.
A New York Times article explained the rationale: ‘Prada’s decision to list in Hong Kong, rather than in Milan, where it has been based for nearly 100 years, signals its desire to tap into a deep-pocketed group of Asian investors — both funds and wealthy individuals — who feel more comfortable putting their money into stocks listed here.
The ‘wealthy individuals’ referred to here, are only going to get wealthier. The EIU report forecasted that by 2030, the income for 270m households in Asia will multiply six-fold to exceed US$50,000. ‘Asia will cement its position as the dominant region for luxury goods, as income and consumption growth rewards the long-term investment plans of key players.
Fashion brands aside, hospitality, automobiles, travel are other sectors that are increasingly tapping into Asia’s potential.
Mercedes-Benz for example, is betting big on India. The luxury German carmaker has already established a strong presence in the nation and is now steering its focus on expanding dealerships, investing in customer relationship management and strengthening its finance, insurance and lease options in the country. The strategy forms part of its efforts to cash in on the aspirational urban consumer, and to stay ahead of competition from rival brands such as Rolls Royce, Jaguar, BMW, and Audi etc, that are now no strangers on the country’s roads.
Looking ahead, there’s no doubt that Asia is leading the game in the luxury goods market, but this élite tag comes at a price – Asia will need to reinvent its marketing, sales, and customer relationship management (CRM) programs to meet the niche standards that luxury goods demand. A report by McKinsey on China’s luxury market stressed on the importance of keeping luxury brands interested and profitable to secure long terms gains and sustain business. Referring to the vital role of customer relations programs, the report stated: ‘At the heart of these programs is technology—the use of data, from online and offline consumer transactions, social media, marketing campaigns, and call centers—enabling retailers to improve the effectiveness and efficiency of their marketing and merchandising capabilities.
‘But in luxury in particular, brands should fit their CRM programs to surprise and impress their customers with personalized and exclusive offerings. Once they have gained a more granular understanding of their customers, they can better engage with them. Starting small, with a few initiatives offering high impact pampering, is often the best way to go.’
Meanwhile, luxury brands too would benefit from taking a break from merely expanding presence into these markets, to understanding the rapidly evolving customer base and sales culture. From retail design down to customer service, an aggressive PR strategy will need to be weaved into the larger expansion plans for Asia.
As the EIU report pointed out: ‘To be among the winners, brands must focus on how to promote products, intensifying both online and offline marketing. Store expansion will need to be more consolidated, with firms targeting smaller, fast-growing cities and new channels, notably e-commerce. Meanwhile, quality and service levels will become increasingly important, especially given the industry’s growing shortage of skilled staff.’