China, in particular, is driving much of the growth in emerging markets. The Chinese luxury market’s rapid growth, from $9.4 billion last year to $14.6 billion, indicates it may be first in the world by 2015. Italian fashion houses such as Prada and Ferragamo report higher 2010 forecasts due to double-digit revenue rises in the first quarter, driven by a booming Chinese market. Prada’s 30 percent increase in sales in the first half of 2010 was driven by a 47 percent increase in the Asian markets, and Ferragamo is pursuing plans to open 10 new stores in China. Even Hermès, which is often more conservative when it comes to expansion, solidified its belief in the huge potential of the Chinese luxury market with the launch of its local Chinese brand, Shang Xia, earlier this month.
Other developing markets, such as Brazil and Russia, are following China’s lead. BMW Latin America experienced 85 percent growth in the first half of 2010, with the largest growth occurring in Brazil (up 131 percent). Competition in Russia’s luxury auto market has also been heating up, with increased sales of models including Bentley’s Mercury with a showroom price of $311,000, Rolls-Royce’s recently released Ghost retailing for $410,000, and Lamborghinis averaging $221,000.
Recovery from recession will be a prolonged process, and it will usher in a new era of competition. In developed countries, successful luxury companies will be those that strike the proper balance between reigniting the heritage of their brands and extending their reach in new ways, primarily through online channels. As they seek to make inroads in the luxury markets of tomorrow, they will need to reinvent their sales and marketing strategies; Chinese high-net-worth individuals are by and large self-made, for example, and 20 years younger than their American and Japanese counterparts. The magnitude of these shifts suggest that not all of the winners will emerge from the ranks of established players — we may soon see the first luxury brands born online or in developing countries.
- Steven Treppo is a Booz & Company partner in the consumer, media, and digital practice, based in Cleveland. He focuses on growth strategy and sales and marketing capabilities.
- Bart Sayer is a Booz & Company principal in the consumer, media, and digital practice, based in New York. He focuses on go-to-market sales and marketing strategies for consumer packaged goods producers and retailers, including many suppliers of luxury goods.
- Also contributing to this article were Booz & Company Partner Karla Martin and Associate Monica Jain.