Big Luxury Watch Brands Attract Big Interest in China

For the second year in a row Omega is the top luxury brand based on Internet searches.

China continues to show strong interest in Swiss luxury watches despite a slowdown in the world’s fastest growing economy, according to a survey of Internet searches released Monday.

The Geneva office of the Digital Luxury Group, a digital consulting and marketing firm for luxury brands, said its analysis of 65 international watch brands shows that every category of luxury watches from “prestige” to “haute horlogerie” has seen an increase in interest the first half of 2012 compared to the same period in 2011, with a near 40 percent increase in aggregate searches.

“This shows that the attention expressed for Swiss watches in China remains strong despite the reported macroeconomic slowdown and the economic uncertainty linked to the political changes,” according to the report released Monday.

“Interest for watches is increasing. This is opposite of what the media is taking about,” added Florent Bondoux, head of Strategy and Intelligence at DLG, in a recent interview prior to the release of the report. He did, however, stress that online interest does not reflect sales.

“We know that this information aggregation in fact does not translate to sell out trends,” he said. “The interest continues to grow, but there are indicators that the purchase cycle (as revealed by the data from the Federation of the Swiss Watch Industry) has slowed.”

In March, DLG, in its WorldWatchReport, revealed that for the first time, China surpassed the U.S. as the country exhibiting the highest demand for luxury watches based on Internet searches. 

The WorldWatchReport measured results in five market segments: “high range,” “prestige,” “couture,” “women’s jewelry,” and “haute horlogerie” The largest growth in Internet search interest is in the “prestige” category, according to the survey. In addition, the best known international brands also received the most interest.

Out of the 65 brands analyzed, the top 10 most-searched luxury watch brands (Omega, Rolex, Longines, Cartier, Rado, Patek Philippe, Vacheron Constantin, IWC, Piaget, Chanel) represent nearly 80 percent of the search market, according to the survey.

The trend toward the big names also includes models. The top models searched this year remained unchanged compared to last year’s survey but now account for more than 50 percent of all online watch searches. They are: Omega “De Ville” (19.6%), Omega “Constellation” (13.30%) Cartier “Ballon Bleu” (6.60%), Chanel “J12” (5.9%), and Longines “Master” (5.10%).

After years of growth in the major coastal cities, such as Shanghai and Beijing, interest has grown in the booming and vast interior of the country. Again, the advantage tends to lean toward the big watch brands as they are the ones who are able to invest locally in these communities, according to the survey.

Style (such as “men’s watch” or “classic style”) followed by price are the most important factors in searching for luxury watches, according to the survey. Bondoux said part of this reason is because the Chinese are becoming more sophisticated in luxury goods. It’s also easier for Chinese consumers to search for style as many of the names for models have no Chinese translation.

“Their overall knowledge is increasing,” he said. “We know that gifting is a very important factor in luxury watches. If you are buying for someone you would not necessarily look for the price but search for generic name.”

The report can be downloaded directly at www.digital-luxury.com/chinawatches.

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Survey: Consumer Confidence Among the Affluent Drops Sharply

The top 20 percent of households by income are no longer feeling confident about economic conditions in the U.S. and are spending far less, according to a quarterly survey of the affluent consumers.

The Unity Marketing Luxury Consumption Index took its steepest quarterly plunge since the recession (between fourth quarter 2007 to first quarter 2008), falling 16.8 points to bottom out at 66 points. This is significantly lower than the previous period’s 82.8 points. The LCI currently stands close to the level attained at the onset of the 2007-2008 recession.

"Consumer confidence among the affluent (which account for 40 percent of consumer spending) has fallen sharply since the beginning of 2011,” said Pam Danziger, president of Unity Marketing, which runs the survey. “Not since the middle of 2009 has it been so low.”

The survey of 1,272 consumers with an average income of $301,000 and an average net worth of $856,000 was conducted July 6-13.

“If those at the top income levels feel stressed and unwilling to spend, imagine what it says about people living in middle-income households,” Danziger said. “We stand on the precipice of a double-dip recession, if the affluent consumer’s confidence doesn't turn up in the next quarter.”

Corresponding to the decline in luxury consumer confidence, the average amount spent by affluent consumers on luxury goods and services in the second quarter 2011 declined by 8.4 percent from the first quarter and dropped 18.4 percent over same quarter last year.

High net worth consumers (defined in the survey as having $1 million or more of investible assets and representing some 47 percent of those surveyed) have more to spend on luxury, as the high earners make do without. According to the survey, 42 percent of high net worth consumers expect to increase their spending on luxury goods as compared to 14 percent of high-wage earning affluents.

“The high net worth consumers in our sample feel significantly more confident about their financial status than those with lower net worth,” Danziger said.

“Market pundits have been telling us that the 2007-2009 recession has run its course, and that it was only a matter of time before this event would have diffused into the consumer economy. However, this is not the case, borne out by continued weakness in consumer sentiment,” said Tom Bodenberg, Unity Marketing's chief consumer economist. “On the other hand, the stock market has shown firm, almost counter-intuitive strength as many organizations report high earnings. The rise in the stock market translates into a rise in the investment portfolios of luxury goods consumers, which translates into greater discretionary spending, especially among the high net worth segment, as distinguished from the high earners who are holding their spending in check,” Bodenberg said.

Danziger added, “Increasingly income alone is not an accurate measure of a household's spending power. In the current economy many high-earning households are living pay check to pay check just like those in the middle-income brackets. Once the monthly expenses are met, the lower net worth affluents don't have much left over with which to indulge in luxury.”

Global Luxury Sales Show Renewed Worldwide Strength

Strength in markets around the world is fueling an increase in luxury sales, which are projected to grow worldwide by 8 percent to €185 billion ($276 billion) in 2011, according to a survey released by a global luxury goods consultancy Tuesday in Milan.

The growth of luxury sales in China has been getting most attention lately, but this current rate of growth is also being buoyed by strong first-quarter momentum in the U.S. and Europe, according to the “Spring 2011 Update: Luxury Goods Worldwide Market Study,” by Bain & Company. In fact, the U.S. remains the world’s largest luxury goods market.

The Bain study also estimates that luxury sales will grow in the next three years to €214 billion ($318 billion) to €221 billion ($329 billion) and that the demographics are changing, in terms of age, technical knowhow and attitude.

The report also notes that despite the improvements in U.S. and Europe, the biggest growth rates in luxury sales remain in emerging markets, such as Russia, Brazil, the Middle East and, of course, China.

After declining by €17 billion ($25.3 billion) over the course of 2008 and 2009, a strong 2010 closed with a 14 percent increase in luxury sales, versus 2009—bringing the luxury goods market to €172 billion ($256.6 billion), surpassing its prior peak of €170 billion ($253.7 billion) in 2007, according to the annual survey.

Bain said in its report that department stores and direct-owned luxury stores saw continued double digit sales increases in February and March versus 2010, selling out on much of their Spring/Summer 2011 inventory. Stores have placed robust orders for the Fall/Winter 2012 seasons and have restocked sold-out inventory levels. Among the high-growth categories are accessories, leather goods, jewelry and watches. Bain said retailers expressed a high level of confidence that consumers will keep making purchases with the same vigor that preceded the global financial crisis.

“Luxury has made a brilliant return to the retail stage, but the script has been re-written,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “More demanding customers, generational shifts, new loyalty rules, an increasingly integrated offline and digital customer experience and the continued growth of China and other fast-growing markets are transforming the luxury industry.”

Bain forecasts that sales in the Americas for 2011 will grow by 8 percent, to nearly €52 billion ($77.5 billion). China will see 25 percent year-over-year growth this year, putting Greater China (including Hong Kong, Macao and Taiwan) in a strong position to exceed sales in Japan for the first time. Growth in Europe will reach 7 percent in 2011 and Japan will see a decline of 5 percent, due, in part to structural decline and also the impact of the March 11 earthquake and tsunami. However, the study estimates that Japan’s luxury sales will stabilize starting in the third quarter of 2011, as consumption recovers and as reconstruction drives GDP growth. In fact, even as Tokyo stores reopened in the two weeks after the earthquake, brands reported a quick resumption of sales to expected levels, with little impact in southern cities such as Osaka.

The study predicts that growth in emerging markets will remain the focus of luxury manufacturers for the next two to three years. Lifestyle changes have driven a return of luxury goods sales in Russia (5 to 10 percent annual growth). New store openings will fuel growth in the Middle East (10 percent to 12 percent), while Brazil will see heavy investment by international brands (10 percent to 15 percent). China’s fast-growing wealth will fuel both same store sales growth and new store openings.

“The emerging market consumer continues to create the most exciting challenges for our industry,” said Santo Versace, chairman of Fondazione Altagamma, an Italian luxury goods industry trade association, which provided much of the data for the study. “Even as we adjust to the maturing of the North American and European markets, consumers in countries like China are becoming more demanding and more sophisticated in their luxury tastes.”

In its report, Bain mentions three ways that those in luxury industry can better take advantage of the growing and changing luxury market:

* Deep focus on emerging markets—penetration; route-to-market; a tailored value proposition

* Adaptation to the continuing generational shift—baby-boomers retiring; Generation Z (always connected)

* Continuous enhancement of the customer experience—increase loyalty and satisfaction; integrated online and offline experiences; unrelenting service

“Emerging markets are doing more than generating revenues,” said Bain’s D’Arpizio. “New consumers are also forcing luxury brands to become much more nimble in the merchandise selection and customer experience they offer to increasingly diverse consumers.”

‘The Luxury Drought’

There’s a gap between older affluent households and younger folks who are eager to purchase life’s better things but don’t quite have the earning power. Add to this a broad division between very high net worth households and those who are modestly well off and the recent recession that has changed buying habits, and you are looking at a foundation of slow growth in the luxury sector for the next ten years, according to marketing expert Pam Danziger.

“Demographics is destiny in lots of ways,” Danziger, president of Unity Marketing, Stevens, Pa., told an audience of luxury professionals Tuesday in New York. The she explained how demographic trends are creating a slow period in luxury spending.

The main consumers of luxury goods and services are affluent households, she explained. They are the top 20 percent of households in income with average earnings of about $170,000.

Danziger divides affluent households into three groups: 25-34 (made up of Millennials) who are “not quite there,” in terms of earnings; 35-44, “younger affluents” (mostly Generation X), the “most prolific consumers;” and the 45-54, “mature affluents” (mostly Baby Boomers), who don’t spend as much on luxury as their younger counterparts. The older affluents is the dominate age group in the luxury market today and until at least 2019. The recession plays into this but the main reason is because the younger affluent group is a relatively small compared to the other two age groups.

“Mature affluents are going to dominate the market between now and 2020,” she told the audience at the event sponsored by The Luxury Marketing Council. “We’ve got to wait for the Millennials, the babies of the baby boomers, to come on board and they’re not going to reach middle age and reach that window of affluence until about 2019 and 2020.”

To make her point, Danziger showed a chart of population projections of by age. One line which curves in an upward manner consists of mature affluents who “are really peaking.” Another line, which started high but then went on a downward curve represents the young affluents. The space in between is what she calls “the luxury drought.”



“This period is going to be dominated by more mature affluents who just do not spend as much or have as heavy an appetite for luxury as the younger affluents,” she said. 

“I call it a drought because it doesn’t mean that it’s drying up,” she continued. “It doesn’t mean the luxury market is going away, but it does mean you’re going to have to work harder to make ready in this marketplace. You’re going to have to work harder and be smarter than the next guy because there aren’t as many people that you can sell to.”

Danziger said marketers need to target the 25- to 34-year-old group by providing products and services geared for that demographic and engaging them with social media.

“We knows these people have a heavy appetite for luxury,” she said. “We know they are friending all the luxury brands on Facebook. But guess what? They don’t have the money to buy those brands yet so there’s going to be a lot of opportunity for marketers to figure out how to connect luxury brands with 25 to 34 years old before they get money in their pockets.”

Affluent Shoppers are Spending Less on Luxury

Affluent consumers continue to express pessimism when it comes to the U.S. economy and it’s affecting how they shop, according to Unity Marketing's Luxury Consumption Index.

The quarterly survey of 1,364 affluent luxury consumers (avg. income $298,300) dropped 6.2 points to 72.1 points in the third quarter with these high-net worth individuals spending 1.4 percent less than they did in the second quarter.

“Luxury consumers started 2010 with a feeling of optimism that the worst of the economic turmoil was over,” said Pam Danziger, president of the Steven, Pa.-based marketing research firm and author of the upcoming book, Putting the Luxe Back in Luxury. “But through the course of the year, reality hasn't lived up to those expectations, so we have seen a retreat of the LCI throughout the year. Lower levels of affluent consumer confidence are playing out in terms of reduced of spending on luxuries.”

Danziger said the survey reported declines in expenditures in most of the 22 categories of luxury goods and services.

Among the findings in the third quarter Luxury Tracking Study:

* Spending on luxury declined 1.4 percent overall in the third quarter, when compared to the second quarter. However, ultra-affluents (top 2 percent of U.S. households with incomes over $250,000) cut their luxury spending by 11 percent for the period. Luxury consumer spending dropped from $31,665 on average in the second quarter to $31,225 in the third quarter. “This pull back … will have the strongest impact on the heritage luxury brands at the high end of the luxury market,” Danziger said. “The good news for luxury marketers is that luxury consumers spent 33 percent more this year as compared with last year. But marketers should prepare for another tough fourth quarter as the affluent look once again for more bargains and discounts.”

* Personal electronics will be the most popular holiday present for these consumers. The only luxury goods category posting quarter-to-quarter growth was personal electronics, including laptop computers, GPS, cell phones, MP3 players and eBook readers.

* More affluent consumers purchased luxury in the third quarter, even though they spent less overall. Luxury goods and services categories that captured a greater share of affluent shoppers this quarter included luxury clothing and apparel, wine and spirits, fine dining, entertainment and travel. “What the data says about the third quarter is that in these five categories marketers attracted a greater share of customers, but they were not able to convert them into higher-spending customers,” Danziger said.

* Luxury consumers traded down to more mass brands in search of value. For example, more ultra-affluent shoppers frequented Costco (35.5 percent) and Target (36.1 percent) this quarter than Neiman Marcus (21.3 percent).  

* In the fashion boutique sector, Ann Taylor (17.6 percent), Banana Republic (16.6 percent) and Ann Taylor Loft (16.1 percent), were patronized more by ultra-affluent shoppers this quarter than traditional 'luxe' brands such as Chanel (10.8 percent), Louis Vuitton (11 percent) or Coach (11.8 percent).