In the late 13th century, Marco Polo amassed a fortune by shuttling luxury goods from China’s “developing” market to Italy. Today, a shift in purchasing power has reversed the flow. Luxury goods now increasingly flow from “mature” Western markets to the emerging markets of Asia, Brazil, Russia, and the Middle East. Thinktank group L2 has dubbed this reverse trend the “Polo Marco” effect.
While the domestic demand for luxury goods in North America has stagnated, the North American luxury market has grown tremendously in 2013 and is expected to grow an additional 9% by the end of the year. This boon has been fueled by consumers in emerging markets, who actively travel to North America to purchase luxury goods. In America, luxury products like iPhones are cheaper by $200 (than in China) to $400 (than in Brazil) a piece. Luxury consumers happily take advantage of the pricing arbitrage in Miami, New York, and Paris and often return home toting suitcases bulging with luxury goods.
Emerging markets are now brimming with high net worth individuals and luxury brands have been eager to cater to these audiences by establishing a number of brick and mortar boutiques in emerging markets. While these boutiques initially showed strong signs of growth, rates have since plummeted. China’s domestic luxury market had an auspicious growth rate of 20% in the first year, though that number has since plunged to 2.5% in 2013%.
The reality is, luxury consumers in emerging markets still prefer to purchase their goods abroad, despite the availability of local luxury brand boutiques.
According to the “Luxury Purchase Power” report by Chinese Media Channel iFeng, 40.52% of Chinese respondents bought luxury goods shopping overseas and the number is only rising.
The travel industry works hand in hand with the distribution of luxury products. The relaxation of visa policies for emerging markets has contributed significantly to luxury tourism in mature markets, especially since emerging markets rank as top tourism spenders. Brands capitalizing on the luxury tourism trend are also focusing on airport retail, the “6th continent”, where brands can easily reel in globetrotter luxury consumers.
A number of factors play into the decision to buy abroad. While high tariffs and taxes undeniably play a large role, brands must recognize that service and ensured authenticity are just as significant. Luxury consumers from emerging markets are increasingly interested in educating themselves on the brand, make, and history, and many feel that local luxury boutiques are less versed in this specialized knowledge. Complaints of lower quality service and less informed advisors in mainland luxury boutiques are driving Chinese luxury consumers abroad for their purchases, according to the Ruder Finn and IPSOS joint China Luxury Forecast.
Luxury brands that recognize the important role of service have started hosting private cocktail soirees and runway shows specifically targeted to emerging market luxury consumers. Affinity China has hosted a number of Tiffany & Co., Burberry, Neiman Marcus, and Bergdorf Goodman’s private events to connect the brands with high net worth Chinese consumers and investors.
While the exodus of luxury consumers from emerging markets has negatively affected luxury brand branches within emerging markets, international luxury brands can effectively profit from luxury tourism given the right strategy. Some brands are choosing to fly out their VIP clients to flagship boutiques in Western markets, however a savvy digital international luxury marketing campaign can help your brand reach a far larger audience at a much lower cost.
At the end of the day, strengthening your luxury brand’s digital marketing within emerging markets allows you to monetize the audience in mature markets. Speak to international media planning and buying consultancy Criterion Global today on ways you can develop your brand’s digital marketing strategy in emerging markets.