Leisure

GLOBAL INVESTOR FOCUS Leisure — 43
Worldwide spending
on traditional
and new luxury
goods in USD
Luxury goods: USD 1 trillion
Swiss GDP: 366 billion
Expected
long-term annual
growth in luxury
goods sales
+10%
Investments page 50
Illustration: Wolfgang Hametner
Mouthwatering new luxury goods
Consumers worldwide spend approximately USD one trillion every
year on traditional and new luxury goods — the equivalent of the
entire GDP of Spain or three times that of Switzerland. It is a sum
that many believe will continue to grow at a rapid pace in coming
years. However, the consumer’s perception of luxury is no longer
just about “traditional” luxury brands, such as Louis Vuitton, associated
with the core attributes of creativity, craftsmanship, exclusivity,
innovation and premium pricing. Now there is also “affordable”
luxury, which is about goods within a product category selling
at a significant premium to the average, offering not only better
quality and availability than peers but also binding consumers emotionally.
Consider, for example, Starbucks and Lindt & Sprüngli.
While the former, an emblematic new luxury brand, charges a premium
of around 50% over similar coffee products for a pleasurable
experience, the latter has managed to garner a significant share of
the premium chocolate market worldwide. Both traditional and affordable
luxury are exposed, to a greater or lesser extent, to powerful
economic, demographic and cultural trends. The wealth effect
in emerging markets should support consumption and travel, while,
in the West, luxury goods demand should continue to benefit from
rising income inequality and discretionary income, as technological
innovation, global sourcing and retail polarization continue to drive
down costs. Other powerful engines for growth in the luxury goods
market are migration to the cities in China, as well as an increasing
pool of aging baby boomers in mature markets with a propensity to
spend more on higher-priced items. Cultural shifts, the increased
spending power of women and customer sophistication should also
help global luxury goods turnover grow at more than 10% per year in
the longer term.
The trend toward premium goods or affordable luxury is more of
a mature markets phenomenon. In his book “Trading Up: The New
American Luxury,” Michael Silverstein distinguishes more than 30
categories; from travel to food and personal care, where consumers
trade up to premium products and services that are positioned below
traditional luxury goods. Pressured by time, stressed by work, living
in a complex world, sophisticated Western consumers are willing to
pay more not only for quality and performance, but also for comforting
emotional benefits. Changes in retail structures, greater
availability of capital and efficient global supply-chain management
systems have enabled established companies and new entrants to
take advantage of this trend. Firms in the affordable luxury segment,
which can create, manufacture and deliver superior products, normally
generate superior growth and higher returns and offer attractive
long-term investment opportunities. Robin Seydoux