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September 4, 2015

The Future of Luxury – What to Expect

By Zahra Al-Kateb

By Zahra Al-Kateb

shutterstock_200810729Despite recent financial uncertainty across the globe, forecasters have predicted that 2015 will see luxury brands continue to grow. With Hermes having reported a 22% increase in second quarter sales for 2015 and positive results for LVMH and Kering, it seems as though their predictions are right.

It would seem that ongoing political tensions between China and Hong Kong and growing financial insecurity in Greece would prevent the growth of the luxury market, however according to Global Blue, Chinese tax-free spending in Europe was up by 16% in 2014 as opposed to 2013, with Paris being named the most favored shopping destination closely followed by London. Despite financial difficultly, the weakening euro combined with the high import taxes on luxury goods in China translates into Chinese customers taking advantage overseas, with luxury goods costing up to 60% more in mainland China compared to Europe.

However, Chinese spending is not just benefitting Europe. During 2014 2.2 million Chinese visitors travelled to Japan, an increase of 82% year-on-year, no doubt boosting the Japanese luxury economy. As well as this, 8.4 million Chinese tourists are predicted to visit South Korea – a location that has become popular largely thanks to pop culture and soap operas.

Despite this, 74% of Luxury CEOs did not cite Chinese growth as having the most positive effect on their business – they cited the United States. Although New York is undoubtedly the key hub for luxury brands, other US cities including San Francisco, Dallas, Houston, Atlanta and Washington are all expected to catch up. These five cities together represent 20% of the UHNW population in the US, all of which have seen rapid wealth primarily increase largely due to the tech and energy industries. The end of last year saw Chanel open their refurbished and larger store in Houston, while in Dallas Jimmy Choo doubled in size. Hermes has also refitted their store.

As well as a rise in financial growth increased through spending, the US is often seen as an appealing safe haven for wealthy Chinese individuals with an interest in property and education for their children, with Chinese real estate buyers being responsible for more sales in the US than any other non-US group for the very first time, up from 9% from the previous year.

It seems there is potential for luxury brands to capitalize on the increase in spending from Chinese consumers, with the weaker euro and high import taxes playing a significant role. Destinations like Paris, Milan and London have become shopping experiences in themselves for many Chinese tourists, and exclusive products which are only available in certain countries which tell a story will promote and enhance economic growth and sales.

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