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How are luxury brands beating the cost of living crisis? | Business Beyond

Global Luxury Market Booms: Chinese and South Koreans Lead the Way

  • Personal luxury goods, such as clothing, cosmetics, handbags and jewelry, have seen decades of sustained growth
  • The affluent Chinese population is a major target market for luxury retailers
  • South Koreans are the biggest buyers of premium brands
  • And luxury cars sales are cruising, with the sector expected to continue growing in 2021.

Wealthy Individuals Drive Increase in Luxury Goods During Pandemic

  • The demand for luxury cars, private jets and real estate increased during the pandemic due to wealthy individuals avoiding public transport, supply chain problems, global wealth growth and a desire for more space
  • Car manufacturers shifted their efforts onto their premium products to compensate for limited microchips
  • Private jet companies saw a 20-30% drop in prices when the first lockdown occurred, but then surged due to businesses needing to send people to inaccessible places
  • In 2021, luxury home sales rose 35% higher than pre-pandemic levels with 2022 seeing price records smashed in many of the world’s most expensive housing markets.

Luxury Real Estate Market Resilient Despite Economic Turmoil, Booms Ahead with Wealth Transfer and Growing Youth Spending.

  • The luxury real estate market has been largely unaffected by stock market and interest rate fluctuations
  • Cash buyers have insulated this sector from the punitive measures affecting more modest homes
  • The future holds promise with a wealth transfer in the next 10-15 years, which will lead to an increase in luxury consumption
  • The younger generations are driving growth due to their willingness to spend large amounts of money.

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cost of living crisiswhat cost of living crisiswars in the pandemic may have plungedmany people into poverty but the world'sluxury brands have never had it so goodsales have soared for everything fromfancy Footwear to Ferraris we saw thelargest demand ever actually in cars inthe first quarter of this year and youlook at lvmh they just became a 500billion Euro company her first time inEurope a company of them became that bigwith the help of Industry insiders andexperts let's investigate what's drivingthe luxury Boom the people and theplaces in 2021 the affluent Chinesefamilies were about 100 million 2025there will be 200 million why do so manypeople in the world seem to be treatingthemselves so actually puts a smile onyour face luxury changes yourperspective and just how long can it alllast find out in this edition ofbusiness Beyondif you're in the luxury business you'vehad a good couple of years pretty muchno matter what you sell but the reasonsaren't always the sameduring the course of this video let'slook at four key luxury sectors Each ofwhich has a different story to telllet's start with what are calledpersonal luxury goodsthat term covers everything from premiumclothing through Cosmetics Handbags andJewelrythe things we buy to make us feel andlook goodand right now they're flying off theshelvesthe sectors actually seen Decades ofsustained growth interrupted only by theglobal financial crisis of 2008 and 9and the coronavirus pandemic but sincethe depths of the pandemic spending onpersonal luxury goods hasn't justrecovered it's surged it's a period oftime when consumers need a bit ofescapism and when you've been stuck athome for so long[Music]um I think you um you know you aspire totravel you aspired to uh forgetting whatwe've just uh all been through theluxury uh enables you to move to a morepositive psychological place I guessthat's Air1 rombour who is hsbc's experton personal luxury having worked deepwithin the industry himself we spoke tohim just as the biggest name in thesector made historylvmh became the first European companyto surpass 500 billion dollars in marketvalue today the shares up 34 this yearup 70 percent just in the last sevenmonths lvmh the owner of Brandsincluding Louis Vuitton Dior TiffanyHennessy and a whole load of others isriding a wave of enormous demand for ataste of European luxury a wave that hastaken the sector by surpriseI think fundamentallywe had underestimated the impacts of thereopening in Europe even more so in theUS and now you have Chinese consumerscoming back and they're moving theneedle quite significantly since thedepths of the pandemic luxury retailershave seen sales increase pretty mucheverywhere and even in markets that theynever fully exploited before thepandemic I think you have a lot of localKleinfelds who were ignored literallyfor decades if you think about the localFrench Italian Spanish consumers if youthink about in Asia the local Thai orSingaporean consumers they were left outbecause you didn't really need them youknow you needed in Italy to speakJapanese Korean Mandarin Russian andEnglish to go about and then suddenlythe world shutand you started to pay attention to thelocalconsumers in those local markets thebiggest market for luxury goods Remainsthe United States but with thingslooking a bit wobbly with the US economymore on that later the sector's futuremay not depend on America but on Asiaand above all ChinaGDP grow fueled by an increasing middleclass and at middle class gettingincrease in the affluent has been thedriving motor behind a luxury businessand if you just think numbers in 2021the affluent Chinese families were about100 million and you know in 2025 therewill be 200 million just think about thedoubling of a relevant relevantpopulation that's interested in buyingluxury goods and those are just thewealthiest Chinese around a quarter ofthe Chinese population is thought to bemiddle class it's around 350 millionpeople that's more than the entirepopulation of the United Statesthat's an enormous aspirational targetmarket for luxury retailers the worldover particularly with Chinese consumersstill appearing to prefer to buy theirpremium products from overseasif you look at other categories in Chinayou see you know compared to 10 yearsago local Brands create gainingincreasing popularity but in the luxuryBrands that's still not fully Decay soyou still see you see you know half ofChinese consumers saying that they willthey would like to pursue local optionsbut you don't see them yet at that scalein the luxury segment you see some earlystartups and some of the big Europeanshave invested in interview but if youlook at the scale of that compared tothe big Europeans it's still you knowrelatively small Asia has two othermajor markets for luxury goods Japan haslong been the Region's High Street withwealthy Shoppers heading there toshopping up Market stores and SouthKorea south Koreans are actually theworld's biggest buyers of Premium Brandsa fact that hasn't escaped the likes ofLouis Vuitton who just held their firstever major event thereaccording to Morgan Stanley the averageSouth Korean spent 325 on personalluxury goods last year fifty dollarsmore than the average American and sixtimes the average spend in Chinaonly 20 of Koreans has a kind of calledShame factor or feeling of you shouldnot display your wealth and your statuswhich is very very different in othercountries and so the willingness todemonstrate wealth and you demonstrateluxury in the next dream way it's muchmuch higher even for younger generationsand especially younger generationNational Generations who are buying moreand more the post-pandemic return ofthese markets Has Lifted luxuryretailers to new heightsquestion ishow long can it last it's a much morebalanced industry than it used to be andit's partly de-risked from that point ofview because you're relying on againGlobal wealth and not one singlenationality moving and moving the needlefor your for your business probablyChina will remain the biggest motor justby sheer volumes Korea will still growdriven by the affluence of the youngerpopulation Japanwill actually still Grow Again by theChinese tourists spending there and thensoutheast Asia is on the rise as well sothe luxury goods boom still has sometime to run yetlet's talk about another premium sectorluxury carswhile sales of ordinary cars have barelymoved recently and show little sign ofgetting out of first gear high-endvehicle sales are cruising with thesector expected to continue growing intothe next decade sales of cars costingover half a million dollars are expectedto increase 14 each year through to2031.to what's going onlook at this course as an asset EricFinos dalstrom is CEO of global luxuryMarketplace James Edition demand forluxury cars on the site hit a recordhigh this yearour average price is a little bit morethan four hundred thousand dollars soit's it's really in the higher luxurysegments than a combination of botheither brand new luxury unique cars oruh second-hand cars in the luxurysegment and two things we see there isthat if you compare for two years ago weseeum that demand is very strong and we seethe prices the the prices are areincreasing so what happened two yearsago well with air againpandemic but while sales of personalluxury items increased in the wake ofthe pandemic sales of luxury carsincreased in the midst of itone reason was that as people avoidedpublic transport they upgraded their ownset of wheels but a further driver wasthe behavior of the car manufacturers aglobal shortage of microchips caused bypandemic supply chain problems meant carmakers could produce fewer cars so tomake up for it they went for qualityover quantity shifting their effortsonto their premium products couple thatwith the growing number of wealthyindividuals in the world like we talkedabout in Asia and you have the enginefor a luxury car sales boom and whatsmall car makers have been able to keepprices rising by limiting theavailability of their products inmarkets like Asiait's more constrained by the amount ofcars they're willing to put in themarket than the demand the Ferraris ofthis world could sell more cars if theywanted to but they're also verydeliberate in how much they allowed togo to the market in terms of you knowfulfilling growth and making sure thatthey keep the experience reallyexclusive this strategy means thatunlike mass-market cars luxury Vehiclesdon't begin losing their value themoment you drive them off the forecordyou might that double the value when youtake it out of the factory instead oflosing let's keep things moving and lookat another luxury sector with a tale totell so while the pandemic saw some ofthe world's wealthy take to the roads infancy cars others took to the skies whencode first happened though the airlinesthe commercial airlines probably cutsomewhere between 60 and 70 percent oftheir schedules so if you wanted to gofrom point A to B you just couldn't getthere the solution for those who couldafford it a private jet although it tookthem a bit of time to realize itthe industry did take a big dip a bigdip right when the first lockdownoccurred in the beginning of 2020 I'dsay the market probably dropped 20 or 30percent as far as prices andum you know most of the activity stoppeddead because everybody thought it wasthe end of the world and um you knownobody was going to fly anymore anywherein the world and everybody was going todie so um it didn't take long after thatto people realize okay the world's notcoming to an end and they start seeingthere is potential for light at the endof the tunnel and uh this thing startedcoming back alive and um it slowlyslowly started picking up speed almostum like a locomotive coming out of astation so private jets enabledbusinesses to send their people to partsof the world that commercial airlinesweren't willing to take them to theyalso had the added bonus of sidesteppingcertain health concerns people didn'twant to travel with a lot of otherpeople in a big airplaneand uh and a lot of the commercialaircraftum also recirculate the air inside thecabin where on a corporate aircraftyou're actually taking fresh air in fromoutside as a result of all this demandsurged and so did pricesa lot of the charter operatorsum saw a huge increase in demand I meanreally like a 50 60 increase in peoplewho wanted a charter a corporate Jet and50 of those people never flew on acorporate jet before and for some thehabits stuck 2022 was a massive year forthe private jet industry the market grewto over 34 billion dollars for therecord 5.3 million private flightsworldwide last yearthey can't talk about private jetswithout raising the environmentalquestion private flights are thought toemit 10 times as much per passenger ascommercial flights but it's a questionthat Steve vasano is used to answeringnowadays this is uh the uh secondcomment you get after hello how are youfor sure playing on a corporate jet isnot as environmentally friendly asflying on a commercial airplane there'sno question about that flying on Ryanairis not asum environmentally friendly is taking ahorse whether anybody wants to believeor not corporations will have bases allaround the world they need this kind offlexibility to be able to travel aroundthe place this is like 2023.environmentalists would prefer to see areversal of the trend towards privateflight so is that going to happenit started slowing down a little bitwhen interest rates started going uparound the world and um the threat of aEuropean and a U.S recession coming alot of the the world is just taking abreather uh and since it's nothingdifferent that's happened in the pasteverybody thinks how the end is here butit's just a cycle what I hear frompeople that are pretty smart in theworld economics is the beginning of 24Interstate you know start dropping downand and the world starts recovering andall of a sudden you go right back upagain let's take a look at our finalluxury sector real estateagain this story starts with thecoronavirus pandemic lockdowns and therise in working from home meant peoplewere spending a lot more time betweentheir own four walls realizing that theyneeded something more something thatalso played out on the James Editionwebsite people have pre-evaluated wherethey live and and how they live whichmeans that people are looking for morespace and maybe moving us to placeswhich offers a slightly differentlifestyle and a day-to-day basis thatstill enables them to work on a distanceto the regular jobs the impulse amongthe world's wealthiest to seek out morespace peaked in 2021 when the number ofluxury home sales was a whole 35 percentabove the pre-pandemic levels of 2017according to Forbes and at the very topend 2022 saw price records smashed inmany of the world's most expensivehousing markets particularly in the USproperties in Hong Kong and in Europewere also among the most lucrative butwe see also a lot of demand from fromthe U.S coming to Europe now we have astrong dollar we still have even thoughthe stock market has gone down a bit uhlately we still have a lot of peoplethat that still benefited a lot fromdifferent stock market gains in previousyearsum and and if we look even thoughinterest rates are going up a lot ofthese buyers in this what we call thanhot spots in in Europe or cash buyersthe largest town and that's a keydifference between luxury real estateand the average sale while many would-behomeowners would need a mortgage to pushthe sale over the line the world'swealthy do not that's why they'relargely immune to the high interestrates the blighting buyers in the US andEuropeso that means luxury real estate saleshave been resilient where more modesthome sales haven't however the questionis once again can it lastI think that the the trends that we haveseen in terms of real estate peoplerelocating I guess that will will taperoff a bit uh as we go forward peoplehave now done those relocations andthat's what's playing out luxury realestate levels in 2022 were only a fewpercent above pre-pandemic levels wellbelow the 2021 boom times four luxurysectors four different stories the whatdoes the future hold for those who maketheir money out of other people havinglots of itinteresting about the luxury Market isthat you see more younger populationsstill you know quite happily spendinglots and lots so it's not a oh this isan old generation thing which is alsomakes you know the sustainability of thegrowthbetter with a huge wealth transfer onyour next 10 to 15 years largeinheritances moving down to to kids andthen let the grandkids downum that will drive to some extent someluxury consumption I am bullish for thelong term in terms of the compoundingnature of growth because you still haveso many people you can recruit withinthe Pyramid of luxury that's all forthis edition of business Beyond ifyou've enjoyed it if you think you'lllike this one too and we'll see you overthere[Music]