Luxury brands have spread their global reach like wild fire. First it was China and then India; now from Antigua to Zimbabwe there does not appear to be a country that does not offer luxury goods to its population. Whilst the majority of sales in lesser-known locations are conducted via the wholesale distribution channel, an increasing number of brand-owned stores are also opening in some unusual locations. Euromonitor International takes a deeper look into the globalisation phenomenon of the luxury industry.
Weighing up the benefits of going global
Since luxury brands like Louis Vuitton and Cartier made their move into China in the early 1990s, followed by India in the noughties, the luxury market in these two countries has rocketed in size, reaching US$18 billion and US$3 billion respectively by the end of 2012. However, with Chinese growth slowing and India showing slow growth, it is essential that other markets are explored.
As with any industry, being the first to offer a brand offers the opportunity to gain the much-coveted first-mover advantage. Cartier, Richemont’s largest luxury watch brand, has been one of the most active in its approach to expansion. With a total of 307 company-owned stores and 9,125 wholesale outlets, it has truly become one of the most globalised luxury brands in terms of its geographical reach. From Angola to Tanzania, Cartier products, which range from luxury fragrance to luxury watches, are available in the vast majority of countries worldwide. There is no doubt that this will increase as the oil industry and economy in Africa grows.
Whilst this helps in terms of brand building and brand awareness in developing countries, the successful management of wholesale partners is paramount to maintaining the brand image and luxury appeal. This is however the preferred route to market taken by many luxury brands as a means of gaining customer and market intelligence, in countries like South Africa, before building company owned stores.
However, as with everything, there is always a range of disadvantages to overseas expansion; from lack of infrastructure, to political and economic instability. Therefore, it is obvious that those brands which start small by offering lower-end licensed products will be well on the way to making their mark in the next frontier markets.
Using web analytics to guide global expansion
With only 440 stores in 2011, even the global king of luxury, Louis Vuitton does not have so many stores. This therefore poses the question is less more?
To some extent, as the world has become increasingly interconnected, through faster shipping and connectivity not to mention the power of the internet, having a virtual presence is sometimes enough. Louis Vuitton has not opened up in as many exotic locations as Cartier and Tag Heur, but it is still a growing success. As the internet becomes ever more accessible, luxury brands can track where their brands are becoming popular by using web analytics software.
Globalisation is vital to the industry, but how it is done will change
It appears that the luxury industry has truly taken the spirit of globalisation to heart. The vast majority of the world, bar large swathes of Africa, can get their hands on the most coveted luxury brands, from Armani to Versace. However, whilst, previously, wholesale may have been the only viable choice to overseas expansion, the internet has changed this and allows brand to conduct viability studies in a swift and accurate manner. As with everything, there are risks, but now that the risk can be reduced and measured, it will be a race to the top to see which brand gets its logo plastered across the nouveau riche in Africa.
Author: Michael Lieblich Contributing Analyst
Republished with permission: Euromonitor International