Luxury goods flying high

892_LuxuryGoods_580x400

Global spending on luxury goods amounted to a staggering 217 billion euros in 2013. The rising sales of luxury products means good news for air cargo business. The most valuable luxury items are manufactured locally, mainly in Europe, and distributed globally.

The number of luxury consumers grows by 10 million each year. The amount has more than tripled in less than 20 years – today, there are 330 million consumers purchasing luxury goods worldwide. The trend will hold up as the middle classes in emerging economies are getting even wealthier.

”In the air cargo business, we clearly see the impact of a growing Chinese middle class in the demand of special food products such as parma ham and pecorino cheese from Italy, chorizo from Spain, chocolate from Belgium, salmon from Norway and wines from the wine producing countries,” says Anja Pöyhönen, Finnair Cargo’s sales director in Continental Europe.

“Other European luxury goods such as textiles, shoes, bags, watches, perfumes and cosmetics are also transported by air. Sea transport is not fast enough for the fast-moving luxury business,” she says.

China is spearheading growth

China’s nouveau riche and growing middle class already account for almost 30 percent of overall spending on luxury goods.

”European luxury brands represent prestige, success and sophisticated lifestyle for the Chinese consumers,” says Tero Kosonen, Chairman of Asia8 Group specializing in market research and analysis in China and Southeast Asia.

”Design, craftsmanship, quality and exclusivity appeal to wealthy consumers in China,” he says. ”At the moment, affluent local shoppers are becoming more selective and not only request products themselves but also the shopping experience and high-end service.”

According to Kosonen, the key concern for Tier One brands in China is to carefully manage the fine line between market share and exclusivity that is associated with luxury.

”Chinese companies are developing their own high-end consumer brands but there still is a substantial gap between the Chinese and the European luxury brand image. It takes time before the gap is closed,” says Kosonen.

Behind every great brand is great knowledge 

Even though the desire for certain luxury products seems to go beyond any rational assessment of their value and quality, the success of great brands is not accidental. For example, the complex knowledge needed in producing a luxury product can normally be found only in a certain geographical area.

There is a long tradition of craftsmanship and specialization in the European clusters producing most of the world’s luxury goods. French and Italian brands combined have a 50 percent share of the global luxury goods market. LVMH Moët Hennessy, Hermès, Salvatore Ferragamo along with a host of other European brands are above the competition.

”Simple, easily codified knowledge can be learned from a distance. But it is complex knowledge that provides a company with sustainable competitive differentiation,” says Yves Doz, the Solvay Chaired Professor of Technological Innovation at INSEAD.

The complex knowledge behind great luxury brands is tacit or context dependent – or both. According to Doz, it is very difficult to learn complex knowledge from a distance.

”For example, the French perfume industry has not been successful in their efforts to manufacture their products abroad. There are some characteristics in the European luxury clusters that are very hard to define and impossible to copy elsewhere,” says Doz.

Can Asian luxury boom in Europe?

As learning complex knowledge from a distance is hard, some Asian companies consider starting their luxury business in Europe. To a certain degree, this is happening already. 

In his lectures, professor Doz often uses the example of an old Japanese technology company Shiseido, which has managed to build a successful fragrance business with several luxury brands from scratch in France. 

”Shiseido came to Paris and created its own fragrance company. Here they gained knowledge about how to develop and sell perfumes. They reached elite customers by acquiring luxury beauty parlors and collaborating with top designers such as Issey Miyake and Jean-Paul Gaultier.”

From Shiseido we learn that the key to acquiring complex knowledge is close observation and interaction with customers and collaborators in various operations. Asian companies can be successful in luxury business, too. However, it will take a long time before the best branded products will be manufactured globally.

This means a lot of travelling for both the luxury goods and the consumers. Chinese tourists boost the luxury sales in the U.S. and Europe, too.

Text by Jorma Leppänen
Photo by iStock

 

 

Published April 24, 2014

Category: Market updates, Economy

Cat_en_featured
Cat_en_blog
Cat_en_latest
Cat_en_event
Cat_en_pdf
Cat_en_blog_small
Cat_en_video
Cat_en_video
Cat_en_blog_small