Why are luxury goods bucking current global trends? Dr. Rebecca Harding, CEO of Delta Economics, explains….
Economic news does not make happy reading at the moment. China is slowing down, the Eurozone, as always, is teetering on the brink of a new crisis, and geopolitical risks (such as the crisis in Ukraine and in Iraq) are making investors uncertain. Add to this the spectre of a humanitarian and economic crisis in Africa as a result of the Ebola virus and falling global oil prices, and it seems as though there is a perfect storm brewing. Markets took a plunge in October and there is no sign that underlying nervousness is about to abate any time soon – the free fall of the Rouble at the beginning of November is testimony to that.
So where does this leave the luxury goods market? China has been attempting to slow down its rapid, export-led growth and instead become an economy that is fuelled by the demand of its ever-burgeoning middle classes. The Delta Economics proxy for how effective this strategy is can be seen through the number of German cars exported to China. More than any other trade corridor, this illustrates just how important luxury goods are to the Chinese economy – German exports of cars are set to grow at an annualised growth rate of 12% for the next five years. No sign of a slow-down there!
So where is the clever money going to go in the luxury market? Delta Economics expects global trade next year to continue its sluggish growth at just above 1% for the year. Against this backdrop, we expect trade in spirits to increase by 2.5%, perfume by 1.4% and cosmetics by 2%. More obvious luxury items, such as “collectables” and cigars, are set to grow globally by 7% and by nearly 14% respectively. This is strikingly higher than “normal” goods trade, so clearly something is going well for the sector.
Asia’s demand for luxury items appears insatiable and any company exporting luxury items to Asia (or just to China), is set to do well. For example, Asia’s demand for spirits and liqueurs will increase by 7.5%, while China’s will grow by 10% in 2015. Similarly, Asia’s demand for wine will grow by 10% and China’s by 13%. Demand in Asia generally and China in particular will grow at around 7% for perfumes and nearly 9% for cosmetics.
But collectors’ items and cigars are the real winners, set to grow in 2015 in Asia by 13.4% and nearly 21% respectively. This is hardly a symptom of a region on the decline. And before we start to be over-concerned about the slowdown in China’s economy consider this: imports of paintings will increase by more than 11% in 2015, engravings by nearly 17%, sculptures by over 10% and antiques by a massive 18%. Back those luxury brands in China – they look like they could be winners!
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