Luxury and fashion are currently experiencing a significant transformation in terms of their geographical focus. Factors such as geopolitical tensions resulting from the Russian invasion of Ukraine, the ongoing effects of the pandemic, and the looming threat of a recession have all had a profound impact on the luxury sector. Just a year ago, there were signs of recovery, but now the industry is facing chronic instability, which calls for a reevaluation of its outlets and a redesign of its geographical network. These issues were extensively discussed at the Milano Fashion Global Summit 2022, which took place virtually on October 25.
One region that has garnered significant interest from luxury brands is Asia, with labels like AMI recently showcasing their designs in Seoul. However, China is presenting a bit of uncertainty. Francesca Diviccaro, head of the retail and luxury sector at IMI corporate & investment banking division of Intesa Sanpaolo bank, acknowledges the lifting of restrictions in recent months and positive sales indicators. However, she believes that China may pose a short-term threat with potential implications for estimates in 2023. Despite experiencing double-digit growth in the past two years, the luxury market in China is expected to see only single-digit growth next year. Nevertheless, Diviccaro still views China as a promising opportunity and anticipates that it will become the largest luxury market in 2025, driven by the rising prosperity of the middle class, younger generations, and potential business growth in second-tier cities. Jean-Marc Duplaix, CFO of Kering, shares this view and highlights China’s significant potential despite the economic slowdown and Covid-related problems.
Alfonso Dolce, CEO of Dolce & Gabbana, believes that it will take anywhere from six to eighteen months to fully restore balance and witness the emergence of a new, stronger China. He emphasizes that this recovery will lead to a new economy of scale with different characteristics, placing more emphasis on the quality of the luxury experience rather than just the product itself. According to Dolce, consumers are no longer merely purchasing a product; they want to feel a sense of belonging to a lifestyle, a dream, or in the case of his brand, an Italian dream.
The landscape has also shifted in the United States, which has become a new hotspot for the luxury industry over the past year. While luxury goods sales performed well in the first half of the year, growth was marginal from July to September as Americans took advantage of the strong dollar and preferred to shop in Europe. However, Chiara Rotelli, executive director and senior analyst for luxury goods at Mediobanca, points out that North America still remains a strong market with further room for retail development.
As luxury brands that were previously concentrated in New York begin to expand into other American cities such as Chicago and San Francisco, Kering has announced plans for significant expansions in the region. Duplaix highlights that the United States and American consumers have been the driving force behind the industry in recent quarters, making it a promising market with long-term potential.
Europe has experienced a remarkable resurgence, both in terms of tourism and local consumption, positioning itself at the forefront of the luxury market in 2022. This is noteworthy considering that Europe lagged behind in 2021 due to economic and geopolitical uncertainties. Kering’s CFO praises the group’s continued investment in Europe and acknowledges the region’s pivotal role in the industry’s recovery.
While Asia, the United States, and Europe remain key strategic markets for luxury brands, other regions are also displaying potential or emerging as interesting future opportunities. The United Arab Emirates and Turkey, for example, benefit from the spending power of Russians and have become booming markets. However, due to European restrictions on Russia following its invasion of Ukraine, many luxury companies have suspended their activities in the region while still retaining their assets. Conversely, regions like the United Arab Emirates, which have not imposed sanctions, have attracted Russian billionaires and their investments.
Gildo Zegna, CEO of the Zegna Group, boldly declares that the Middle East is the new China. With limited access to European markets, luxury brands are now eyeing countries such as Japan, South Korea, and various regions in South America for potential growth. Additionally, Dolce emphasizes the emergence of new markets beyond major capitals, citing cities like Goiânia in Brazil where significant real estate development is driving economic growth. These cities present opportunities for luxury brands to tap into a clientele that is experiencing their first taste of emotional purchases.
Overall, the luxury and fashion industry is undergoing a seismic shift as geopolitical tensions and changing consumer behaviors reshape the global market. Brands are adapting to these changes by focusing on Asia, the United States, and a resurgent Europe, while also exploring untapped markets in regions like the Middle East and South America. The luxury landscape is evolving, and brands must navigate these shifts to thrive in the ever-changing global market.
Useful links:
1. https://www.voguebusiness.com/companies/asian-luxury-brands
2. https://fashionunited.com/news/retail/luxury-market-in-china-may-face-short-term-threats/2021111545207
