Hidden gold at the end of the cross-border rainbow
Luxury brands caught in a domestic demand downturn will have to look a lot further afield if they are to find new customers, says Retail Connections editor, Chris Field
No one needs reminding of the cost-of-living crisis, its various causes or indeed its likely outcomes in terms of consumer confidence and spending. Retailers will have to look further afield for growth and they may be surprised to learn that in some sectors, in some countries, there is strong and growing demand. A survey of more than 14,000 consumers across 14 countries by cross border ecommerce specialist ESW, shows that the cross border market for luxury goods grew by 17% in the first half of 2022 as detailed in its recent Global Voices: Consumer Pulse 2022.
While this level of growth may not be sustainable as the cost of living crisis hardens, ESW has identified five countries with fast cross border luxury goods demand - South Korea, Germany, Australia, Mexico and Canada. Canada and Mexico - as much as 22%.
Key to taking advantage of this accelerated demand is an understanding of local behaviours and preferences. For instance, 73% of Australians enjoy the experience of shopping on the websites of brands they like while 64% believe they get better promotions if they shop with a brand direct, and 60% feel more connected when they buy direct from a brand website. 85%, 71% and 78% respectively in Mexico.
The research also looks at what devices consumers favour in each territory with 83% and Mexicans choosing mobile, more than any other country but still the most popular channel in all five countries.
When it comes to payment, there are some dramatic differences between countries, with Australians favouring PayPal (61%), while most other countries put credit card at the top, with the exception of Germany where credit only scores 31%. The much-heralded popularity of BuyNowPayLater (BNPL) in Australia might be slipping – it is the third most favoured option at 28%.
Retailers also need to know how consumers in each country are finding them. For instance, Germans rely primarily on stores to do product discovery (46%) while 68% of Mexicans rely on Facebook. YouTube and Instagram also feature strongly. When it comes to making purchasing decisions, 59% of Mexicans use social media to access product reviews and 41% use social media to find new products. All countries rely on asking friends, family, followers when making a purchase, led by Mexico at 34%.
South Korea
Korea emerged more quickly from the pandemic than many other nations. As a result, while growth in the UK, looking at the gloomiest sources, is set to be around 0.4%, in South Korea, it will be 2.7% in 2022 and 2.5% in 2023, despite a drag from high inflation, according to the OECD, which adds that from early 2023, growth will pick up due to strong investment and exports.
Statista adds that the luxury goods market in South Korea was US$18 bn in 2021, up from $14.9 bn in the previous year. In the same year, sales of foreign luxury goods increased dramatically. South Korea also had the second highest rate of cross-border online luxury goods purchasing at 36%, behind the leader, China (46%).
Germany
German luxury consumers are among the most demanding in the world but also among the most loyal. According to Statista, revenue in the Luxury Goods market amounts to US$12.14bn in 2022. The market is expected to grow annually by 8.18% (CAGR 2022-2027). The market’s largest segment is Luxury Fashion with a market volume of US$4.52bn in 2022. In the Luxury Goods market, 26.2% of total revenue will be generated through online sales by 2022.
According to Roland Berger, the German luxury market is growing 5% a year faster than the overall global luxury market, with the strongest year-on-year growth (20%) from designer clothing and accessories, watches, and jewellery. This must be understood in the context of the German luxury market in Europe still lagging behind France and Italy.
Australia
The Australian luxury sector has grown on the back of the recent commodity boom, and annual luxury sales are predicted to grow 2.4% to AU$4.5bn in 2026 according to IbisWorld.
Brian Wu, owner of premium multi-brand boutique Incu and operator of APC and Rag & Bone’s Australian businesses, says brands are piling into Australia because they have performed so badly in other markets. “Australia is a market with potential. Brands see Australia as being so positive right now.”
Canada
A combination of increasing wealth, tourism and more affordable prime retail property have made Canada one of the top destinations for luxury retailers, according to analysts. Statista says that the luxury goods market in Canada was worth US$6.25bn in 2022 and will grow by 4.37% a year (CAGR 2022-2027). Luxury fashion is the largest segment of that market valued at US$2.29bn in 2022.
Retail Insider says that there has been an influx of luxury brands opening flagship stores in major urban centres like Toronto and Vancouver over the last two years, including Chanel, Hermès and watchmaker Richard Mille. Nearly 40% of the 50 new international retailers entering Canada in 2021 were in luxury, added Retail Insider.
Mexico
As reported by Vogue Business, the $4.7 bn Mexican luxury market is maturing for fashion and luxury brands willing to go the extra mile in terms of service that’s expected by the consumer. Real estate developers and department stores are continuing to expand into second and third tier cities, targeting both locals and tourists, where they continue to dominate the market.
From cosmetics to luxury goods, Millennials and Gen Z are buying significantly more from outside their home countries than Gen X and Boomers. In fact, they are buying at or near twice the rate of Boomers in every category, including apparel. Faced with stagnant or underperforming domestic sales, retailers that can capitalise on international growth, by shifting regional ecommerce focus and building D2C capabilities tuned to the behaviours and preferences of burgeoning markets, will thrive.
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.