World Luxury Goods Industry Essay Example for Free

World Luxury Goods Industry EssayLuxury goods cast off more than the ordinary and necessary characteristics comp atomic subject 18d to other products of their category. Their characteristics washbasin be divided into 6 parts Symbolism, Price, Extraordinariness, Rarity, aesthetics and Quality. The global merchandise size for the industry has been at a resurrectth lay of 9% per annum. This move has been substantiaten in the market since 1995 till 2000. The sumptuosity market took a hit from 2000 to 2004 when incidents worry the September 11 and SARS epidemic took place during those classs. The market was at a standstill till 2005 when it caught pace oer a extend to until the subprime financial crisis. Recent days the originateth regulate has been at 11% average and this has been happening since 2009. At 2013 the market is sized at Euro 212 one million million and has great potential going forward. The 10 % growth estimated for the market in 2013 represents the fou rth straight year following the great recession that high life goods revenues will grow one-yearly by double-digits. Americas region is also projected to benefit from the market, with revenues maturement by 13 pct by years end and Asia-Pacific sales particularly driven by China India be projected to grow by 18 percent.Growth in Europe is expected to be at 5 percent this year showing that the economic trends in these beas engender affected the market for luxury goods. It is estimated that the luxury goods market will grow, in real terms by 4-6% per year between 2013-2015 change magnitude the market to between 240 and 250 billion by 2015. at that place has been a shift towards online sales in this piece with this middling continuing to grow faster than the rest of the market, at 28% annual growth for the year and reaching close to 10b Euros, nearly 5% of total luxury sales which outsizer than the luxury revenues of Ger umteen.In online sales, shoes argon the top-perform ing category. This level of online penetration is when specks have to treat their online channel as a inviolate part of their competitive strategy, rather than an an extra source of revenue. When we see the different products types in the industry it is seen that the Accessories superiorlights the surpass performance all over the period 2007-2011 led by the emerging markets customers preferences with respect to luxury entrywayories. We see a shift in the market trend in apparels where the mens luxury sales increased by 16% in 2011 surpassing sales to woman.Mens luxury goods in 2011 accounted for 40% of the global luxury market up from 35 % in 1995. As you toilet see in figure above that the accessories and hard luxury goods have seen an increase in member. In the luxury goods market the Italian brands have increased to gain the braggyst market share of luxury sales, moving from 21% in 1995 to 24% in 2013 almost equalling cut brands market share of 25%. But in a consolidati ng market, French conglomerates are a ride force, owning 29% of the market compared to 25% in 1995. Key Figures Category Revenues Growth Forecast.2012 (est) 2012 Leather Goods 33bn 16% position 12 bn 13% Mens Apparel 26 bn 10% Womens Apparel 27 bn 9% Fragrances 20 bn 4% Cosmetics 23 bn 5% Jewelry 11 bn 13% Watches 35 bn 14% Total 212bn 10% The different players in this market are different for different product types like in the luxury watches segment it is Rolex, Omega etc, mens and womens apparels segment it is Armani, Burberry etc and leather goods segment it is LVMH, Ralph Lauren etc. Similarly many more in other segments and below are the different luxury goods brand with LVMH leading in revenue terms. Porters 5 forces model.THREAT OF NEW ENTRANT Capital Requirement The superior requirements for manu pointuring, setting up stores and maintaining them are all very high. The break-even for these brands is very high. Their marketing and management cost much(prenominal) as ren t, high salaries for craftsmen, heavy promotional activities etc. are very high too. A view indicated that they need to have 400 stores to develop a truly global presence. Brand Loyalty The brand image associated with luxury brands and the loyalty created with CRM programs and exceptional service levels is very high for existing brands in the market space.However, the industry has been experiencing declining brand loyalty in emerging markets since their purchases are driven by situation and show off motives and hence brand switching between brands perceived to have similar office is increasing. Nevertheless it takes considerable amount of magazine and expenditure to build its brand loyalty. Scale economies It has been observed that consolidation of brands in the luxury market help in achieving higher economies of scale.Consolidation helps in increasing dicker power with suppliers, obtaining operating synergies say in advertising etc., better financing options and risk managemen t through diversification in the brand portfolio of the companies. LVMH, PPR (Gucci), Prada Group, Richemont have all undergone consolidation. Exclusive access to suppliers and distributors Many brands in this segment have acquired their suppliers or have exclusive arrangements to protect their competitive advantage and insulate against rising costs in future. Also the numbers of distribution points are increasing as emerging markets are growing and luxury malls are coming up.For instance, LVMH acquired Leman Cadran and ArteCad SA- watch dial manufacturers and Delos Bottier, French artisan shoemaker. Retaliation from existing Cos- The mesomorphic established brands tend to retaliate against the smaller and refreshfuler brands by say preventing them from having access to multi-brand retailers. thitherfore we see that the panic of new entrant is high. THREAT OF SUBSTITUTES Middle price brands The growing mid ranged, high street brands demonstrate as a possible substitute to the lu xury brands. During economic crisis consumers tend to trade down. Counterfeit goods The manufacturing and sales of counterfeit goods from Countries like China is growing. Quality design increased internet accessibility and online shopping has make is easy for fast fashion brands to replicate designs and fashion trends of luxury brands within days/weeks of the fashion shows. There are no monetary switching costs to customers. However, at that place is a loss of prestige which is classical to luxury brand vendees. Therefore the threat of substitutes is moderate. BUYERS BARGAINING office staff Decreasing demoraliseer concentration The number of buyers relative to suppliers is increasing.Only 50% of the 1. 6 MN wealthy were as full 4 years ago. Level of dependency on buyer The industry is heavily dependent on top-tier customers, mostly on a small super affluent population. Celebrities etc. being early adopters can drive consumption but single buyers cannot determine prices. Switch ing costs There are mad switching costs involved. With introduction of loyalty programs and associated privileges, the switching costs have increased. Possibility of backward consolidation by customers is very low. So on the whole, the talk terms power of buyers is low.SUPPLIERS BARGAINING POWER Number of suppliers The raw materials are limited and exclusive. There are limited high skilled workers and there is also growing shortage since not many youngsters are willing to learn. For instance, Couture-level embroiderers in France have dropped from ten thousand in 1920 to 200 in 2013. Level of Dependency whatsoever key components and materials are outsourced. For eg LV outsources its monogram leather, in 2012, Chanel ordered gigantic chuck of leather from a supplier in case they wouldnt hold more.Supply substitutes Most materials are highly specialized and voiceless to substitute. Switching costs to new suppliers are high since the role is at risk and there is a past coordina ting experience which is important. frontward integration possibility is very low since the luxury groups are much more experienced and wealthier than their suppliers. Thus, the bargaining power of suppliers is moderate to high. COMPETITIVE RIVALRY Competitive structure The industry has an oligopoly structure since it is dominated by hardly a(prenominal) large independent players.LVMH, Richemont and PPR Gucci are the big three. Demand conditions The occupy is growing and will grow at a relatively high pace as China and Hong Kong markets grow further. Exit Barriers Some brand exist despite the fact that they do not make any/much earnings due to emotional reasons. For instance, Christian Lacroix hasnt made any profit in 22 years. There are nigh highly specialised supply chain components that may be very difficult to sell. Chanel has 6 atelier darts under it which has no alternative usage. The rivalry among existing opposition is high. Luxury Goods-Developed Countries Overview.Th ere is so much talk near China, Brazil and other emerging markets as the future of luxury market period there is some truth to it we cannot ignore the developed markets. The reliable growth and hot spot for luxury goods is still in the developed countries. American region is the business leader of luxury expending it grew at 4% in 2013 compared to 2012. There has been growth in the number of new store opening in tire two cities in these developed countries going to show that companies see potential in the smaller region and there is increase of disposable income in the smaller cities.Visitors from ontogenesis countries still prefer to buy luxury goods from the developed countries this has also led to an increase in the demand of luxury goods in the developed countries. According to Luxury Goods Worldwide Market Study Spring 2013 there are significant regional differences in the luxury market developed countries and all of them have their bizarre differences. Some of them are E urope will see 2% growth in the luxury spending in the next few years, with increasing spending by tourists even though there is glare spending by European nationals.Tourist spending is driving half of revenues in Italy, 55% of revenues in the U. K. , and 60% of revenues in France. Japan has experience a decline in luxury spending by 12%. Although in real terms, the consumption has increased as the country has emerged out of stagflation. The Middle einsteinium continues to be relatively strong, with a 5% growth. The demand for Luxury goods remain strong in Dubai, while Saudi Arabia is also gaining share to become the regions second largest luxury market.As these countries are oil rich they like the flamboyance and luxury. Online sales, of Luxury goods have gained popularity in the last few years in the developed countries. They are growing faster than the brick and mortar stores, turning in 28% annual growth for last year and reaching close to 10 billion Euros. In online sales, sh oes are the top-performing category. With online penetration high, brands should treat their online channel as an integral part of their overall channel strategy, rather than an yet an another source of additional revenue.According to the Luxury Goods Worldwide Market Study finds accessories, including leather goods and shoes, have definitively become the largest segment, growing 4% for 2013 to reach 28% of the total revenues. Apparel is now a attract of the market, growing at 1%, Apparel was very popular couple of years ago. Perfumes and cosmetics had a 2% growth in 2013. Luxury cars, wine and spirits, hotels, in-home and out-of-home food, home furnishings, and yachts all show growth, with luxury cars, wine and spirits, and hotels outpacing in-person luxury goods and leading to an overall 2013 market of 800 billion of affluent spending, up 6% over 2012.compared to 25% in 1995.The luxury goods market in the developed countries is becoming very complex and in some areas is startin g to fashion like the fast-moving consumer goods Industry. Brands have to adapt themselves by bringing in the level of luxuriant customer insight to standout of the clutter. While this Industry is still showing steady but not libertine growth, brands need to adjust to a new set of scientific tools in order to keep up with other markets.CAGE Framework for Developed Countries Cultural Luxury Goods Industry in Developed countries over the years have matured and have formed definite distribution channels where most of the time they try cross selling to their existing buyers. However new customers enter the market, they account to an addition of 1%-3% of the total population involved in the luxury goods instry In Developed countries Culture is often considered with income level to follow a trend related to luxury goods.Considering a people with zero income level when shifts to a income level and wants to buy a luxury good his decision is dependent upon the income he is currently earni ng and the cultivation he is following in the ratio of 32. Administrative Initially as taxes were collected in the form of luxury tax from the customers in developed countries, they were indifferent to it as they had a considerable large amount of disposable income.Over the years as people entered the luxury market they got affected by such high rates. The government how of such countries depend on these taxes as they generate a large amount of revenue. Geographical Most of the developed countries are the manufactures of these luxury goods they tend to be cheaper in these countries. As the demand of the countries is very high they tend to acquire the fixed costs at an early stage, posterior just trying to recover the variable cost making it cheaper.Most of these developed countries have access to superior products used in manufacturing these products thence making the end products to be easily manufactured and thus slashing the rates, thus inducing more customers to buy the produ ct Economic Differences gross domestic product and per capita income of the developed countries is high compared to other emerging countries. Thus showing they have a higher disposable income and standard of aliveness is high proving that they can afford luxury goods as their basic necessities of life is fulfilled. Luxury Goods-Developing Countries Overview.When we talk about developing economies we will be taking into account Brazil China and look at the luxury goods market in these two economies. Almost half of the luxury goods produced worldwide are sold in the emerging markets with China leading the way. The luxury goods market has seen tremendous growth in China whereas the identical growth hasnt been replicated in India Brazil because of some regulatory issues (high import duties). Looking at China, the GDP has been growing at almost 10% y-o-y which has been increasing the denomination of wealthy Chinese in the country.When you look at the Luxury market, the Asia-pacific r egion has been the best performer with a growth rate of 25% in 2011 and accounting for about 29% of the worldwide revenues. The growth of this market in China has been tremendous which can also be perpetrate down to the fact that many e-commerce players have come in to contest which give the digital consumers a chance to make use of the price advantage. The market has been helped by the fact that there has been a shift in the mentality of the Chinese people wherein they want the real jostle now rather than settling for the counterfeited goods.In addition to this due to the weakening Euro and the increase in the number of upper class citizens the Chinese people have been undertaking more and more overseas trips which in turn has increased the revenues for the Luxury market. Now coming to Brazil, the luxury goods market was about 2. 7 billion dollars in 2012, and the expected growth rate was estimated to be about 15-25% for the next five years which was put down to the fact that it has become the 7th largest economy in the world the purchasing power and the income rate for an average Brazilian is growing.Brazil now has 36 billionaires 165,000 millionaires out of which about 50% are below the age of 35, which will help boost the luxury goods market in the country. Now because of the unique service that are being provided to the consumers in Brazil, also the payment plan by installments and also the fact that a huge number of showrooms are being opened in the country the consumers are willing to buy the luxury goods for which they had to go abroad in the earlier days. STRATEGY STRUCTURE PERFORMANCE STRATEGY strategical approach to product offer and price positioning.Focusing on the E-commerce platform as well in order to cater to the increasing number of digital consumers Opening up of new stores and availability of quality products easily. Focus on the retail chains in order to aid the distribution as this is the highest grossing medium (Omni-channel Reta iling). Increase of scale in order to improve margins. Shift towards the accessories sector as this has the highest growth rate amongst the Luxury goods market. Store experience. Real time communication between the brand and the consumer via blogs communities.Off-price outlets. Consolidation. Diversification. STRUCTURE Oligopoly Very few luxury groups dominate the market. Large number of small individual brands. Individual brands being introduced by the large market players. Big Three LVMH Richemont PPR Gucci PERFORMANCE A CAGR of +25% in China for the luxury goods revenues over the period 2008-11. A CAGR of +18. 3% in China for E-commerce buys during the period 2007-10. 31% increase in constant value terms for Brazil, 72% for China 86% for India over the period 2008-13.