As 2017 unfolds, the world markets at large remain plagued by uncertainty. Asia has demonstrated resilience against impact of external markets while situations in the United States and Europe are less optimistic. In such difficult times, businesses must strive to develop innovative products and strategies to win the heart of consumers as competition in the luxury market becomes ever more intense. In particular, we have extracted views from World Gold Council (WGC)’s report The gold market in 2017 contributed by David Mann, chief economist of Asia Standard Chartered Bank, John Nugee, independent consultant and former chief manager of the reserves of the Bank of England and director at the European Investment Bank and Jim O’Sullivan, chief US economist of High Frequency Economics.
Promising Asia Pacific
Figures from leading luxury retailers in 2016 may suggest that Asia Pacific promises some economic prospects. For instance, Richemont’s sales for the Q3 FY2017 ending 31 December 2016 showed a growth of five percent at constant exchange rate and six percent at actual exchange rate compared to the same period of the previous year. In particular, sales in Asia Pacific were the highest among all regions with a 10-percent growth at constant exchange rate, contributed by the strong performance in mainland China and South Korea. According to the company, growth was driven by jewellery in most regions and watches in the retail channel. By product category, the company notched 1,746 million euro of sales in the quarter in the jewellery brands with an eight-percent increase y-o-y.
Another luxury product giant, LVMH MoСt Hennessy Louis Vuitton also recorded growth in revenue of five percent over the previous year. The company’s watches and jewellery business saw a five-percent increase in revenue in 2016 compared to 2015 where growth in China, South Korea and the Middle East continued.
In WGC’s report one major trend identified is ‘long-term Asian growth’. With regard to gold consumption, the combined share of world gold demand of India and China grew from 25 percent in early 1990s to over 50 percent in 2016. Other notable Asian markets for gold include Vietnam, Thailand and South Korea. David Mann, chief economist of Asia Standard Chartered Bank commented that backed by domestic demand from both consumers and investment which cushioned it against impact from external trade, Asia has achieved relatively strong growth since the global financial crisis while the growth in the West remained weak. He also believes that Asia will account for approximately 60 percent of global economic growth in 2017.
The opportunities presented by Asia are also reflected on Hong Kong’s exports of fine jewellery from January to December in 2016 to a certain extent. Statistics of the Hong Kong Trade Development Council shows that while total exports fell by 10.1 percent to HK$48,516 million compared to 2015, there was a rise of 10.2 percent in exports to Macau and an increase of 4.2 percent in exports to mainland China, accounting for 8.1 and 6.4 percent of the total exports value respectively. Compared to 2015, exports value to the ASEAN also rose by 2.1 percent to HK$ 3,807 million, making up 7.8 percent of the sector’s total exports.
Troubled eurozone
Hong Kong’s exports of fine jewellery to the EU in 2016 fell by 7.4 percent compared to 2015. Independent consultant and former chief manager of the reserves of the Bank of England and director at the European Investment Bank John Nugee expects that given Germany’s insistence on fiscal orthodoxy, the current tight fiscal, expansionary monetary policies in Europe will continue. This divergence with the loose fiscal policy and higher official rates in the United States will lead to downward pressure on the euro and the pound, which will increase the friction between northern and southern members of the Eurozone as northern countries benefit from a weaker euro fuelling trade surpluses.
Mixed outlook of the US
Hong Kong’s exports of fine jewellery to the United States in 2016 dropped by nine percent compared to 2015 to HK$15,584 million, representing 32.1 percent of the industry total exports. While president Donald Trump promised a number of pro-growth policies such as tax cuts, increased fiscal spending, his isolationist, anti-trade and pro-tariff advocacy could have detrimental effects to the country’s economy. On the one hand, the Small Business Optimism Index of the United States released by the National Federation of Independent Business (NFIB) in December 2016 rocketed to its highest level since 2004 with a 38-percent jump compared to November in the number of business owners who expect the economy to improve, which demonstrates confidence in the new presidency. On the other hand, there are volatility-causing factors including inflation or growth that could finally result in more aggressive than expected hiking Federal Reserve rates and the strong dollar that tighten financial conditions and hurt multinational companies’ earnings.
Global luxury trends
In a sharing section hosted by Paola DeLuca, founder of Trendvision Jewellery + Forecasting, upcoming trends in the luxury market were highlighted. According to an analysis prepared by McKinsey, in the jewellery market, the market share of branded jewellery will increase against unbranded jewellery from about 20 percent in 2011 to 30-40 percent in 2020. She also observed that by 2018 ethical trading will override all aspects of the luxury market as consumers become more conscious and pursue quality luxury with ethical traits. In line with this is that design of luxury goods in the future will transcend season and should present keepsake qualities as consumers will be drawn to premium quality and minimalistic designs. Last but not least, as e-commerce continues to grow especially in the accessories and fashion categories, jewellers and retailers are advised to think up innovative ways to reach out to customers via inspiring content on different platforms.
Consumer analysis
Along with global trends, DeLuca also introduced four types of consumers, namely the ‘gender neutralist’, the ‘affluent midult’, the ‘anti-hedonist’ and the ‘single globalist’.
The ‘gender neutralist’ constructs his or her identity without following conventional boundaries such as gender labels and ideals. This applies to the much-discussed Millennials and the Generation Z (or the Post-Millennials). According to DeLuca, this group of consumers crave for ‘non-specific shapes and colours that do not stereotypically identify with either male or female’. Materials and colours that speak of neutrality are favoured by them.
Referring to the 35-55 year-old group, the ‘affluent midult’ is a powerful group of consumers that should not be overlooked. These consumers pursue brands and entertainment options that celebrate midlife in an honest and humorous way. They are funny, digitally literate and filled with anxiety to redefine the meaning of being middle-aged. They are not afraid of high price points and desire playful luxury. Examples include tech products and products that speak of classic culture such as antiques and estate jewellery.
The ‘anti-hedonist’ points to the new wave of young people that lean towards a lifestyle that prioritise health, social wellbeing and a peaceful mind. As opposed to the chaos in the external environment, these consumers look for subtle jewellery to free them from unnecessary baggage. As they care also for the environment, sustainable luxury is a key appeal to them.
Lastly, the ‘single globalist’ relates to an opulent group that frequently travel around the globe and fuel the booming airport retail performance worldwide thanks to growth in worldwide tourism, affordable air fares and rise in disposable income in general. A mixture of the older segment of the Millennials, Generation X and the Baby boomers, they sustain demand for artisan jewellery and handmade luxury that represent exotic styles and ancient cultural heritages.
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