Total retail sales of luxury jewellery and timepieces - in the 32 markets tracked by Euromonitor – increased 6% last year, at fixed US dollar prices. It was a resilient performance given firstly, the crackdown on gift giving in China – the category’s primary growth engine of the last decade – and, secondly, the economic headwinds buffeting much of Western Europe.
It was still the category’s weakest global performance in four years, however, and a warning that manufacturers and retailers needs to unlock new markets – especially if they are to capitalise on the current period of lower raw material costs.
Untapped markets to watch
Indonesia looks promising. Annual sales of luxury jewellery and timepieces sum under US$100 million, but there is evidence of a growing appetite for prestige necklaces, earrings and bracelets as well as men’s high-end watches. Leading brands Cartier and Rolex have cottoned on, with both building stronger distribution positions last year. It could be the start of a much bigger wave of investment this year.
One of the barriers, however, is legislation that requires foreign brands to sign up with a local business partner. This has held back global brands in the past. The difference now is that the opportunity is looking too good to miss.
The scale of Indonesia’s potential is visible in the size of its top tier consumer base, with over 17 million people in social class A (the highest income band). That is roughly the same as in Germany, Italy, the United Kingdom and France, combined. Furthermore, by 2020, social class A is projected to expand by around 1.5 million. Jakarta is the hub of the demand, accounting for 90% of luxury goods sales last year.
Thailand is another market with upbeat growth potential. Total sales of luxury jewellery and timepieces increased 11% in 2013, the category’s best performance in five years. Here, the development of premium real estate is key - specifically, luxury shopping malls and department stores in Bangkok.
A new 500,000 square foot luxury shopping centre is planned for 2015, for example, and is the kind of project that could help turn Bangkok into a luxury-shopping destination of the future, competing with the likes of Hong Kong and Singapore – especially for high net worth tourists from Asia and Australasia.
India and Brazil Have More to Offer
There is no shortage of bad news about the Brazilian and Indian economies at the moment. Brazil’s economy has been treading water for two years, and with presidential elections later this year there is uncertainty about future macro-economic policy. In India, there is the double whammy of cooling economic growth and high inflation.
However, while manufacturers of fast moving consumer goods are feeling the pinch, in the luxury jewellery and timepiece category – where purchases are often viewed as long-term personal investments – there has so far been limited impact. As such, there are still myriad opportunities for growth.
In India, especially, there is surging demand for luxury jewellery and timepieces in the first tier cities. Over the last five years, retail sales have shot up by an average annual rate of more than 25%, the highest growth seen anywhere in the world. Increases over the next five years will be less aggressive, but are still expected to be double-digit. One downside is a recent hike in import tariffs on gold, however.
Given the reputation of Brazilians for shopping and their penchant for premium brands, particularly in São Paulo, it is surprising that the market for jewellery and timepieces has failed to take off in any significant way. Last year, total sales were still shy of US$500 million and almost two and a half times lower than in Mexico. Indeed, there are few categories across the consumer goods spectrum where the disparity between Brazil and Mexico is so high
The problem in Brazil is twofold. Firstly, there is a flow of hard luxury from the informal sector – for example, passing through Ciudad del Este in Paraguay. Secondly, high net worth Brazilians tend to do a large share of their luxury shopping outside Brazil, either in the United States or in Western Europe. The challenge is in encouraging Brazilians to do more of their luxury shopping at home. The Fifa World Cup that takes place in June and July is a window of opportunity because a higher proportion of Brazil’s wealthier classes are expected to take their vacations at home.
Sales of luxury jewellery and timepieces in China increased by US$4 billion between 2008 and 2013 (and by a further US$1 billion in Hong Kong). No other market came even close to that growth, in absolute terms. The surge fizzled out toward the end of the period, though. For example, sales of men’s luxury timepieces increased less than 8% last year compared with 36% two years ago (at fixed exchange rates).
The problem, of course, is that demand for expensive watches has been undermined by the clampdown on ostentatious gift giving. And that seems set to continue. Yet, there is evidence that growth in demand for women’s jewellery is getting back to pre-2012 levels. Indeed, with the Chinese New Year (when presents are exchanged) falling on January 31st, there are reports of a recent surge in sales of gold jewellery and diamond engagement rings.
China will be a pivotal market long into the future. That much is sure. But, the conditions are ripe for prestige brands – and timepieces in particular - to dilute their growth dependence on China and to build stronger positions in less traditional hard luxury markets, not least because of the comparatively lower cost of precious metals – which is fattening margins. Cue a year of bolder global investment.