IBISWorld reveals why luxury retail revenue is on the rise, despite a downturn in other retail sectors.
While the majority of retailers have suffered amid rising competition from online-only retailers and largely negative consumer sentiment over the past five years, Australian luxury retailers have been relatively insulated from this weak retail environment, according to industry research organisation IBISWorld.
IBISWorld senior analyst Kim Do said this is a growing trend.
‘The luxury retailing industry has grown at a rapid pace over the past five years, with revenue expected to grow at an annualised 10.2% over the five years through 2017-18, to $2.1 billion.
‘This growth has largely been driven by inbound tourism, particularly from Asian tourists. Sales from local buyers have also grown, due to market polarisation and growing interest in luxury brands from younger consumers. Changes in marketing techniques by many luxury houses have additionally contributed to revenue growth over the period.’
Tourists topping spend
The luxury retailing industry’s robust performance is largely attributable to tourist expenditure on luxury goods, according to Do.
‘IBISWorld anticipates that in 2017-18, approximately 30% of industry revenue will come from inbound tourists, especially from the rising middle class markets in Asia, such as China. This demographic has been one of the key markets for the industry, helping it to weather the effects of widespread economic uncertainty,’ she said.
According to Tourism Research Australia (TRA), China is expected to overtake New Zealand as Australia’s largest source of international visitors in 2017-18. This growth has been caused by rising middle-class wealth in China, which has allowed Chinese visitors to spend more money on discretionary activities such as travel.
TRA also estimates Chinese visitors to have the largest tourism expenditure of any international market. According to the latest available information from Tourism Australia, Chinese tourists collectively spent over $10.3 billion in Australian retail over the year ending September 2017. This accounts for over 25% of all tourism spending. However, the inbound tourism market has traditionally been drawn to heritage luxury labels and large flagship stores, rather than niche brands.
This is largely due to the prestige and popularity of brands such as Chanel, Louis Vuitton and Gucci across Asia. According to IBISWorld, many outlets have changed their retail offering to capitalise on this growing trend. ‘Shopping centres and airports are updating their retail offering to take advantage of the burgeoning growth in luxury retail spending,’ said Do.
‘For example, Melbourne’s International Terminal (T2), which just underwent a three-year, $50 million makeover, now includes brands such as Tiffany & Co., Emporio Armani and Burberry. Similarly, over the past five years, Chadstone Shopping Centre has added brands such as Saint Laurent, Givenchy, Dior, Cartier and Balenciaga, with more anticipated to arrive over the next five years. Other international airports and high-end shopping centres across the country are also following suit.’
Local lovers of luxury
Luxury retail sales from local customers have also increased over the past five years. This growth has been driven by a variety of trends, such as market polarisation, luxury goods being bought as investment pieces, and a shift in the market towards younger consumers.
‘Polarisation in the retail market involves consumers buying the majority of their clothes and accessories from the fast fashion segment and then complementing this with pieces from the luxury high-end market,’ said Ms Do. ‘This has been particularly prevalent for items such as handbags, jewellery, belts and other accessories, which have grown as a share of industry revenue over the past five years. Polarisation has also gained momentum as an increasing number of consumers have viewed luxury items as investment pieces. This is due to the ability of these items to remain fashionable and last a lifetime, along with possibly even increasing in value.’
Traditionally, the typical consumers of luxury goods have been the cash-rich, middle-aged cohort. However, as incomes increase, younger consumers are becoming increasingly conscious of fashion and luxury, especially due to the influence of social networking platforms. Social media has allowed younger consumers to increasingly share their items online and become more exposed to the extravagance of celebrity lifestyles, stimulating demand for luxury items. As a result, many luxury retailers have changed their product ranges and marketing strategies to attract younger consumers.
Maximising marketing
The marketing strategies employed by luxury brands have shifted over the past five years. Industry players have increasingly focused on becoming a one-stop shop for consumers, and have concentrated more on providing consumers with a unique emotional shopping experience. This includes paying close attention to store design and techniques that stimulate sensory buying.
‘For example, luxury jewellery retailer Bulgari is expected to revamp its Sydney store to create a more positive emotional experience for consumers. This includes using design techniques to make shopping more experiential, encouraging consumers to touch and engage with the store itself as well as its product range,’ said Do. ‘These strategies have been adopted by many retailers over the past five years. The renovation of Apple’s Chadstone store in Melbourne – designed to look like a park with trees and wooden seats – has helped create a space for consumers to play games, check their email and simply hang out without a specific intention to purchase.’