Why Luxury Companies Should Follow Tectonic Urbanization Trends

Why Luxury Companies Should Follow Tectonic Urbanization Trends

According to McKinsey, by 2025, roughly $250 billion of GDP will be concentrated across only 60 mega-cities – that’s a fourth of the total global GDP.

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Significantly, 21 of these high growth cities will be located in emerging markets, particularly China.

“21st-century China is urbanizing on a scale 100 times that seen in 19th-century Britain and at 10 times the speed,” observe McKinsey principals Aimee Kim, Nathalie Remy and Jennifer Schmidt in their September 2014 article ‘The glittering power of cities for luxury growth.’

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Luxury Companies – Emerging markets already making their mark on luxury sales.

Indeed, demand is already trending higher in emerging markets as seen in the chart from McKinsey below.

Last month William Lauder, Executive Chairman Estee Lauder Companies Inc(NYSE:EL), while speaking to CNBC’s Sara Eisen, said, “We have an extraordinary opportunity for share gain in faster growing markets such as Asia, like the Middle East, sub-Saharan Africa and all the emerging markets; China is now our third largest market in the world whereas 10 years ago it wasn’t even in the top 20.” Responding to a question on dwindling shopper activity at US departmental stores, he remarked that high end products were doing very well.

Jewelry retailer Tiffany & Co. (NYSE:TIF) reported good numbers for its second quarter last month, with sales rising 7% to $993 million and clocking earnings of $124 million. The company’s new stores in the Asia Pacific region propelled regional sales higher by 15% in the first half of the year; comparatively, sales grew at 9% in America (mainly boosted by prices) and only 8% in Europe, while demand in Japan declined by 13%.

Clearly, luxury good companies must keep looking for new markets as existing ones mature.

Luxury Companies: Epicentres of luxury demand

Calling their massive urbanization and concentration of growth an economic rebalancing and one of the most significant economic transformations the world has witnessed, the authors say the new urban megacities will be global hotspots of demand for luxury goods.

“The world’s top 600 cities will account for 85% of growth in the luxury-apparel market in 2025 versus 66% for luxury beauty products and only around 40% for consumer packaged goods,” they estimate.

The ‘luxury capitals’ of 2025 would be:

Luxury Companies capitals

Concentration of economic growth in emerging countries, notably China, will throw up extensive opportunities for luxury brands and retailers. By adopting a city wise approach, luxury players can prioritise and focus their plans for market entries.

Luxury Companies: Planning is key

Given that a city-specific emphasis is particularly suited for luxury companies the authors emphasize that a strategic marketing plan that is synchronized with business development models, resource allocations and organisational structures is essential to make a success of a city-wise “attack plan.”

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