Domestic consumers: The "Sleeping Beauty" of European Luxury

Transcription

1 European Luxury Survey 2011 Domestic consumers: The "Sleeping Beauty" of European Luxury Nathalie Remy Thomas Tochtermann

2 2 Europe is the world s biggest luxury goods market, responsible for 36 percent of total luxury sales. Europe was also the most resilient mature market during the financial crisis between 2007 and 2011, with a compound annual growth of 2 percent (9 percent over ); and it was the only mature market with sales in 2011 higher than in The solid bottom line hides a certain troubling dynamic, however: most of this growth has come from a revived influx of tourists from foreign markets returning to pre-crisis traveling and spending habits. The annual number of Chinese, Japanese and Russians visiting European tourist establishments grew by 19 percent between 2009 and 2010 (35 percent for the Chinese). Chinese consumers doubled their transaction volume on tax-free articles in France in the first quarter of 2011 and their average spending per basket has doubled since income bracket and by country. The survey grouped European consumers of luxury goods into three basic annual income tiers: over 100,000 (top-tier), 50, ,000 (mid-tier), and below 50,000 (low-tier). The survey identified significant variation in the attitudes of consumers towards luxury buying by income bracket, not only in terms of spending levels, as would be obvious, but also in expectations and preferences, notably regarding price policy and distribution channels. In addition, market segmentation reveals that there are significant and pronounced patterns in luxury consumption at a national level. As the market gets more complex, luxury players will need a deeper and more granular understanding of target consumers to better meet their expectations and needs. In the path to developing their strategies, luxury players will need to discover how to deepen their relationships with consumers in the top income bracket, how to target the middle bracket to successfully transform it into a growth engine, and how to tailor their products to meet differences in luxury consumption by income bracket and by country. Building on its 2010 study, What s Next: Rebirth of Luxury, McKinsey conducted a new survey in 2011 of approximately 4,500 luxury consumers across France, Germany, the UK and Italy. The survey sought to reveal the attitudes and behaviors of these European consumers, as part of a global McKinsey effort to better understand evolving luxury consumers. (A similar survey was conducted for both China and Japan.) This survey confirms trends observed in the 2010 survey, and reveals two main challenges. European luxury consumers have lost enthusiasm for luxury consumption. They have become more price sensitive and the ways they are seeking and enjoying luxury are markedly shifting. Comparing the 2011 European findings with the booming Chinese luxury market, these trends appear even more striking. Moreover, our 2011 study shows that European luxury consumers exhibit multifaceted differences, present by

3 c f Domestic consumers: the Sleeping Beauty of European Luxury 3 TWO CHALLENGES TO REAWAKENING DOMESTIC CONSUMERS The lost enthusiasm Confirming a trend identified in the 2010 luxury goods survey, the 2011 survey revealed that the European market has become more challenging for luxury companies. Europeans seem to have lost enthusiasm for luxury items and buy fewer than they have in the past. The apparent causes behind this are a rising price-sensitivity and an evolution in the manner in which they choose to enjoy luxury goods and services. Comparing the 2011 European findings with the booming Chinese luxury market, these trends appear even more striking, as luxury penetration differs significantly between Europe and China, and price sensitivity is significantly higher among top-tier consumers in Europe than in China. Luxury penetration (people who bought at least one luxury item) among European consumers remained stable in 2011, but more than 50 percent stated that they purchased fewer luxury items than in On a comparable basis, this statistic has increased slightly, from 51 percent in 2010 to 54 percent in 2011 (Exhibit 1). By comparison, luxury goods penetration in top income bracket consumers is 9 points deeper in China 1 than in Europe, with an average penetration across all product categories of 27 percent in China compared to 18 percent in Europe. Furthermore in China, the top and middle tiers show the same level of penetration (35 percent), while in Europe these two tiers show a marked difference: 32 percent in the top tier and 20 percent in the middle tier. The higher penetration of luxury goods among Chinese consumers over Europeans is true across all product categories except in the lower-value areas of fragrances and small accessories. Exhibit 1! " # $ # % & % ' ( $ & ) ( $ * +!, ( $ - ) # - # ) & ' $ #. - % & / + # ' $ & % & ( $ / % ( 5 # ' $ % ( " % ' #. #, + & # 7 # 8 # +! ", 9 & - # - x y z z y { } ~ y { } ƒ ~ y { { ƒ { } y z } ˆ { ˆ y Š { { ~ ƒ Œ r k n t k n m l m n o r m n o s s p m q q k n m l m n o h i j k l m n o While Chinese consumers tend to focus on apparel, watches and handbags, Europeans prefer fragrances, cosmetics and apparel. As an example, 33 percent of top-tier Chinese consumers said they purchased a luxury handbag during the last 12 months compared to 11 percent of top-tier Europeans. On the other hand, 40 percent of Europeans bought luxury fragrances compared to 21 percent of Chinese consumers. The gap between Chinese and European attitudes towards luxury purchasing is likely to grow. Price sensitivity e e e d Our 2011 survey confirms the findings of the 2010 survey that European customers are very price-sensitive, though this trend is decreasing compared to Respondents reveal a pronounced tendency to buy only when on sale (28 %), though this number is down compared to 2010 (32 %). Data furthermore show that a growing percentage prefer trading down c d w g c u v x y z ˆ ~ y { { ˆ ƒ Ž ˆ ƒy y Š { { ~ ƒ Œ ˆ Ž } y ˆ u Œ y ˆ r k n : ; < = >? A B C E F E G H I J K L M J K N O P J QR G L S T K P I UM V W S I X Y UL Y I M V T QP V J I M J Z J UQJ [ QM W S I \ ] ^ ] J K N \ ] ^ ^ _ A ` J N N V a M I b J K R G UK L QT N M N UK P Y M V T I Z M R UK \ ] ^ ^ to less expensive brands, with 17 % of them declaring that they switch to less expensive players on apparel, 4 points higher than in As a comparison, among top-tier Chinese consumers, 35 percent express a willingness to pay full price, compared with only 20 percent in the European top tier. The price sensitivity gap is the same across product types. For example, for classic goods that can be used for many years, 47 percent of Chinese consumers are willing to pay full price compared to 27 percent for Europeans. Once again, the gap is particularly pronounced in the middle tier, as 7 percent of mid-tier Europeans are willing to pay full price compared to 30 percent in China. 1 McKinsey primary consumer research

4 þ?? 4 Exhibit 2 š š œ ž ž Ÿ š ž š ž Ÿ œ ž š š œ Ÿ Ÿ š ª «± ² ³ ² µ ª «² «µ ¹ ª ª µ ¹ ² «º ²» ¼ ½ ¾ ¼ À Á  ² Æ µ ² ¹ ² «² ³ µ «¹ ² Ä Å Ä ³ Æ Ä «º Ä Ã ª «Â «µ «ª «È Ç É Ë É Ê Ì Í Î Í Ï Ð Ñ Ò Ó Ì Í Î Î Ï Ð Ñ Ò Ì Í Î Î Ï Ð Ñ Ô É É Á  «º µ ¹ ¹ ² ³ à «Ä Å Ä ³ ± ² ³ ¹ ² ² Æ º Ä Å Ä Å ± ¹ ² Ã Ç Õ Ö Ø Ù Ú Û Ü Ü Ý Þ ß Û à á Þ â Û ã ä å Ü æ à Ú Ý æ à á ç â æ èé ä ê Û Ü ë ì íú ì Ü Ý Þ î èâ Þ æ Ü Ý æ ï æ íèæ ð èý ê Û Ü ñ ò Õ ò æ à á ñ ò Õ Õ ó Ö Ø ô æ á á Þ õ Ý Ü ö æ à é ä íà Ú èî á Ý á íà â ì Ý Þ î Ü ï Ý é íà ñ ò Õ Õ ó ú û ú û ù ø Shifting modes of enjoyment In addition to their price sensitivity, European consumers have lost some of their enthusiasm for luxury shopping. Only 22 percent of 2011 respondents say they enjoy owning and wearing luxury goods as much as they always have, a 3-point drop from However, a shift from luxury goods to luxury services could be compensating for fewer luxury purchases. As shown by the 2011 survey, 30 percent of European luxury consumers are willing to spend less on luxury goods so that they may spend more on luxury experiences such as travel, restaurants or spas. This trend remains true across European countries, with results ranging from 27 percent for French and German top-tier consumers to 33 percent in Italy (Exhibit 2). Exhibit 3 _ ` a b c d e f g ` h i j k e f i i l ` m a f e n e f e h g e n ` f o f p h q p h q i a e g d p r c s o ` j c d t j e i u k d q b c d e f n ` f m e o i d c e i u r ` m e f c d e f n ` f q e a p f c k e h c i c ` f e i p h q ` j c r e c i! " # $ % & $ ' ( ' # ) & * +, & -. / & ) 0 # , &. ( % ' # ( 0 4 & -,. ( 5 & $ ( 0,, & / 6 0 # ) ' # 7 $ 0 $ % &. # / 8 &, / 9 : % &, & ) 0 " 0 ; 6 ;, ( %. / & " 0 ;, < ; * ;, " ' $ & 4 / = > D E F G H I J K L M F N O P Q K L O R S D T T U T T T V W N N P W X Y L F O O J N M F Q K Z 0 6 [ $ ' &, ( 0 # / ; 4 &, / \ ] ' ) [ $ ' &, ( 0 # / ; 4 &, / \ ^ 0 8 &, [ $ ' &, ( 0 # / ; 4 &, / \ ü ý ü ü ü þ ü A B C B C The multifaceted consumer Our survey reveals a multifaceted European luxury consumer profile, with consumer differences determined by income bracket and country. Income-related facets Income-bracket differences were present not only in spending levels, as would be obvious, but also in expectations and preferences, notably regarding price policy and distribution channels. Penetration and spending level. Thirtythree percent of top-tier consumers bought at least one luxury item over the past 12 months, compared to 20 percent of middle-tier consumers. This higher penetration level holds across all product categories, and especially for apparel and shoes. Top-tier Europeans also spent more than twice as much as did their mid-tier counterparts on luxury shopping ( 2,800 per capita per year vs. 1,200).

5 Domestic consumers: the Sleeping Beauty of European Luxury 5 Resilience and stability in purchasing. Only 29 percent of top-tier consumers stated that they purchased fewer items in 2011 vs. 2010, while the corresponding figure for mid-tier consumers was 43 percent. Enjoyment of luxury consumption. Among the top tier consumers, 38 percent said they enjoy luxury purchases as much as they always have, compared with 23 percent for the middle tier. Channel preference, reflecting price sensitivity. Top-tier consumers show a preference for purchasing at brand boutiques, while mid-tier consumers tend to focus more on outlets and bargain stores. This channel choice is reflected in the higher willingness among top-tier consumers to pay full price (20 percent) over their mid-tier counterparts (7 percent) (Exhibit 3). Inspiration and impulse. Top-tier consumers say that their buying inspiration comes mostly from store visits, while in the middle and lower tiers, media, including shopping websites and TV, play a stronger role. Country-related facets When comparing segments with the same income level, significant differences in luxury consumption patterns appear from country to country. Italians appear as lovers of luxury across all categories. Italians have the highest penetration level across all income brackets and product categories. Forty-seven percent of top-tier Italians declared that they purchased luxury goods in the past 12 months, compared with 31 percent for the French, who were in second place. Similarly, 40 percent of mid-tier Italians declared that they bought luxury apparel, compared with 22 percent for the European average. Yet, despite their high annual spending level, Italians show a very limited willingness to pay full price, even in the top tier (only 8 percent). This is reflected in their channel shopping preferences, which incline much more toward off-price channels such as outlets than those of other Europeans. French are fragrance and cosmetics addicts. French overall penetration and spending on luxury products is at par with the European average, but they spend a lot on fragrances: 65 percent in the midtier bought luxury fragrances in In the apparel and handbag categories, on the other hand, the French are underpenetrated compared to Italians or Germans. In these categories, the French more often state that they switch to less expensive players. Germans are big ticket apparel and fragrances shoppers. Mid-tier German consumers spent more in luxury purchases than other Europeans (over 1,300 per capita in 2011). The German have the highest average spending in Europe among mid-tier consumers; they rank second after Italians when considering top-tier consumers, with more than 3,000 on average in Germans tend to shop less frequently than other Europeans, and they have a high propensity to buy on sale. Thirtysix percent of mid-tier Germans stated that they bought apparel only when on sale in 2011, against 28 percent for the British and French and 20 percent for the Italian middle tier. Moreover, income segmentation seems to be a more limiting factor in Germany than in the rest of Europe, as the mid-tier German consumers are less penetrated on all product categories than their counterparts in other countries. British consumers are willing to pay full price. British luxury consumption is relatively low, despite penetration commensurate with other Europeans and a high willingness to pay full price. Top- tier UK consumers spend about 1,800 per year on luxury goods less than half of

6 Ù Ø 6 their Italian counterparts ( 4,000 per year). Yet, 31 percent of the British say they are willing to pay full price, a much higher willingness than is shown in Germany, which is in second place at 20 percent. Like the French, the British tend to focus on low-value categories such as fragrances and cosmetics (Exhibit 4). Exhibit 4 { } ~ ƒ ˆ Š Œ Ž Š Š } ƒ ƒ ƒ À Á Â Ã Ä Å Æ Ã Ä Ç È Å É Ê Ä É Ë Ç Ì Á Å È Í Ã Î Á Â Ç Ä Ê Ï Í Ð Í Ã Ñ Ò Å Å Ê Ç Ó É Ë Á Ä È Â Ç Ë Ô Õ Ö Å É Ë Á Ç IMPLICATIONS AND OPPORTUNITIES FOR LUXURY COMPANIES A key question is how to turn these challenges into opportunities. From our analysis, three opportunities appear to reawake European luxury consumers. Two are about activating existing segments of European consumers, while the third is about better adapting their offer to national markets. In order to seize these opportunities, luxury companies will need to implement specific strategies that each address key questions. Opportunity 1: Capturing untapped potential to further develop value in the top tier of European consumers. Is your Customer Relationship Management program sufficiently tailored to create a nurturing relationship with top-tier European consumers and increase their frequency of purchase and category participation? Are you prepared to deliver the exceptional in-store service that will satisfy Europe s most demanding luxury consumers? Opportunity 2: Attracting the middle-tier consumers and transforming them into an additional growth engine. Can you optimize your channel strategy, involving online, outlets and department stores, to appeal to š œ ž Ÿ ª ««± v v v v x Ÿ œ y ± ² ³ µ ¹ º» º ¼ ½ ² º ¼ ¾ ½ v w v consumers from the mid-tier income bracket? Consumers sometimes do not feel at ease entering luxury shops, especially those in the lower and mid-tier income brackets. What levers can be pulled to break these invisible barriers? Which pricing tactics could you leverage to overcome low willingness by European to pay full price without damaging your brand? Opportunity 3: Introducing country and product adjustments to reflect differences in luxury consumption and new service trends. How well do your shops and the assortment of product offering they offer reflect different needs across countries? How can you further differentiate your products on a local basis within the context of a global market? v z v Ú v x v w v w v z v y v w w x x y v z w v Û œ ± Ü «± œ Ý «x z «œ ««œ «Ÿ Þ w ß «w w x y à á œ ± Ü «± œ Ý ž Ý Ÿ «á Ÿ œ ± œ w z v v As a luxury player, what are your key opportunities in terms of brand stretching? Are you prepared to expand into offering luxury services?

7 Domestic consumers: the Sleeping Beauty of European Luxury 7 CONCLUSIONS McKinsey s 2011 European Luxury study confirms the trend observed in 2010 that European consumers of luxury goods and services are becoming more challenging for luxury companies. These consumers have new expectations regarding products, points of sale and service, and they are also more price-sensitive. Another difficulty for luxury companies that our analysis has revealed is that the European luxury market is complex and multi-faceted. Luxury players must find a way to address these issues and reawaken the European domestic luxury consumer. At stake is secure growth in the world s largest luxury market, especially given fluctuations in tourism. By addressing these issues, European luxury companies will also be better prepared to gain in the next phase of growth in currently less mature markets. Last but not least, securing growth by reawakening local European consumers will allow them to better root their brands in their home market. To capture this growth, companies will seek to carefully design targeted efforts by category, nation, and/or income segment. Deploying a tailored strategy for each European country will be a challenge, especially since competition will remain intense, and remaining global will be a key strength. Winners will be those who manage the difficult balance of attracting the multifaceted European consumer, while staying globally competitive, and without weakening their brand image. The central question is how far luxury companies are willing to go to capture the opportunities.

8 Contacts Apparel, Fashion & Luxury Practice January 2012 Copyright McKinsey & Company