A number of emerging cities are becoming viable markets for luxury goods.
(Kuala Lumpur=Koreanpress) Nancy Joseph = WealthInsight’s study on ‘The Rise of Luxury Goods in Emerging Cities 2019’ took a look at the market growth potential of 10 emerging cities for luxury brand expansion. These cities were Shanghai, Mumbai, Mexico City, Istanbul, Bangkok, Tel Aviv, Jakarta, Kuala Lumpur, Ho Chi Minh City and Lagos. The study was based on the latest forecast from WealthInsight’s database and interviews with suppliers, luxury consultants and wealthy consumers living in the cities studied.
Istanbul, Mumbai and Mexico City emerged as the rising cities for luxury brands
Demand for luxury goods in Istanbul is strongly driven by a number of factors. The city has the highest number of Ultra High Net Worth Individuals (UHNWI), with 1,110 individuals in 2014, slightly higher than Shanghai with 1,095 in the same year.
HNWI population growth in Istanbul is also high, at a forecast-period of CompoundAnnual Growth Rate (CAGR) of 6.1%, rising from 58,000 individuals in 2015 to 65,000 in 2019. The city’s urbanization is one of the highest in Turkey, with 73% of its population living in urban centres. The city has also experienced strong growth in its female working population as well as wealthy Middle Eastern tourists.
Mumbai, India’s financial capital, is an attractive location for multinational enterprises (MNEs), and increasingly attracts wealthy expatriates. The city is also home to the Hindi film industry, and has the country’s highest HNWI population, with 98,000 individuals in 2014, which is forecast to reach 138,500 in 2019. The city also has a growing middle-class population, offering a significant opportunity for luxury brands.
Demand for luxury goods in Mexico City is strongly driven from domestic sources such as the emerging middle class and HNWIs living in the city. It had 63,500 HNWIs in 2014, with a positive growth prospect at a CAGR of 7.7%, rising from 65,500 individuals in 2015 to 73,500 in 2019. There are more than 1 million Dual Income No Kids (DINKs) in Mexico, of which a significant proportion reside in Mexico City and form one of the key customer segments for luxury brands.
“It is clearly evident that luxury goods are on the rise in the emerging cities. This is a strong message for luxury brands to carefully formulate their expansion strategy, client strategy, and marketing strategy to capture local demand, if to remain competitive,” commented Dr Roselyn Lekdee, Economist at WealthInsight.
WealtIInsight found that domestic demand had a great effect on luxury goods growth in the emerging cities studied. Domestic demand is broadly made up of wealthy local consumers, or HNWIs and UHNWIs living in the city, in particular the lower-tier millionaires and mass affluent consumers who have a strong preference towards luxury brands. It is very unlikely that individuals would travel to emerging cities such as Lagos to specifically purchase luxury goods.
Shanghai had the highest number of HNWIs among the 10 selected cities in 2014, with 176,300; it is expected to record a CAGR of 10% to reach 237,600 in 2019. The city was followed by Mumbai with 98,000 HNWIs in the same year, which is projected to grow at CAGR 7.6% to reach 138,500 by 2019. Mexico City, Istanbul and Bangkok also had large HNWI populations in 2014. Mexico City had 63,500 HNWIs, followed by Istanbul with 56,200 and Bangkok with 49,300. Interestingly, Bangkok is forecast to record the second-highest growth of HNWIs over the forecast period, after Shanghai, at a CAGR of 8%, to reach 57,000 HNWIs by 2019.
WealthInsight forecasts that the number of HNWIs in the 10 selected emerging cities combined will exceed 670,640 by 2019. In particular, Shanghai, Bangkok and Mexico City will have the highest HNWI population growth over the forecast period – at a CAGR of over 7% – providing strong market potential for luxury brands to target HNWIs.
Cities with smaller luxury markets such as Lagos, Kuala Lumpur and Ho Chi Minh City are the ones to watch, while traditional markets such as Shanghai and Bangkok show slower growth. Jakarta and Tel Aviv are the upcoming markets, while Mexico City, Mumbai and Istanbul offer the most promising prospects for expansion. Growth opportunity in emerging cities certainly exists when there are growing HNWIs and the market has not reached the mature stage. HNWIs often treat themselves and look for ways to showcase their financial success.