Who buys where: decrypting cross-border luxury demand flows

11 July 2016

Contactlab in collaboration with Exane BNP Paribas is focusing this new research on the question of who actually buys luxury goods products and where they come from. We leverage data from digital and physical retail to create an unprecedented set of analyses.
We record the % of sales in every country, coming from domestic vs. foreign customers. Conversely, we ascertain where exactly in the world each nationality buys luxury goods products. We track nationality vs. geography of luxury demand over the past three years. This is relevant, as 30% of luxury goods products were bought abroad in 2015, increasing 3,5% on 2014, with huge interchange between Asia and Europe.

We identify five nationality vs. geography clusters:

  1. The USA, Japan and Korea have relatively limited interchange with the ROW
    More than 90% of luxury purchases are carried out by Japanese and USA nationals in their respective countries – 80% when we look at South Koreans. Foreigners buying in Japan, South Korea and the USA only represent 5-15% of luxury goods sales in those markets, even if luxury goods purchases by Chinese nationals in Japan and Korea have risen in recent years on the back of favourable FX.
  1. Europe – F, I, E, CH and the UK – benefit from massive inflows and little outflows
    French, Italian and Spanish consumers buy 85-95% of their luxury goods in their respective countries. By contrast, foreigners account for 70-80% of luxury sales in France, Italy and Spain. These countries have materially benefitted in recent years from a weakening EUR. The UK and CH are a little less extreme, with Swiss and British consumers buying 80-85% of their luxury goods in their respective countries. By contrast, foreigners account for 50-55% of luxury sales in Switzerland and the UK.
  1. Hong Kong & Macau are even more extreme than Europe
    Hong Kong & Macau are most extreme in benefiting from inflows. More than 80% of domestic luxury demand stays in Hong Kong & Macau. By contrast, foreigners represent 90% of luxury goods sales in Hong Kong & Macau. This despite Hong Kong & Macau falling from c.37% of incoming luxury goods sales in 2013 to c.25% in 2015, as Chinese demand has moved elsewhere, namely Japan, Korea and Singapore. Chinese consumers were spending 70% of their luxury goods dollars in Hong Kong in Jan-Apr 2014 vs. 35% in Jan-Apr 2016.
  1. EMs – Russia, China, Taiwan, Brazil, Mexico and India – are the largest contributors to international luxury sales, while benefitting from very limited inflows
    Russia is the most extreme: 2/3 of Russian luxury spend goes abroad, while inflows account for just over 5% of luxury sales in Russia. China is the second most extreme: c.40% of Chinese luxury goods purchases are made abroad – while China benefits from virtually zero inflows. Brazil, India, Mexico and Taiwan are in the same ballpark, though even less extreme: 2/3 of luxury spend stays at home, while inflows account on average for 5-10% of luxury goods sales in each country.
  1. The UAE and the Gulf are in a unique position, as they relatively have both significant inflows and outflows
    Luxury goods sales in the UAE and the Gulf depend by c. 50% from oversea consumers. At the same time, UAE and Gulf nationals buy approximately 50% of their luxury goods abroad. Russians and Chinese nationals are the most important luxury goods spenders in the UAE, while Middle Eastern consumers spend a significant amount of their luxury goods dollars in Europe.

Once in Europe, US, Gulf and Russian travelers appear to be heavy spenders (+ 20% vs. domestic tickets), while Asian travelers look more like first time aspirational buyers (minus 20-30 % vs. domestic tickets)

We are not seeing a demise of international luxury spend, and this is a clear positive for luxury goods

Our evidence points to international luxury goods spend not to be in bad shape. Overall, the data in our sample point to 5% increase in domestic and overseas luxury spend in the first four months of 2016. Chinese overseas spend decreases by 5%, but domestic spend increases by 5% – leaving a net positive balance. Hong Kong & Macau are net losers vs. Japan, Korea and Europe. Interestingly, Chinese spend in Europe appears to be rising – possibly because our data includes also a portion of Daigou spend ( eg Chinese students in Europe whose visas don’t allow tax free refunds, and which are therefore not captured by Global Blue statistics). If this is what we see in the wake of the November terrorist attacks, then 2H16 could reasonably expected to be even more positive

11 July 2016
Author Marco Pozzi Senior Advisor
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