December 13, 2019
Where are you? Image credit: Euromonitor International
By Elton Morimitsu and Guilherme Machado
Euromonitor's latest research analyzes over 84 key luxury markets with a combination of 21 indicators, helping industry leaders understand and adapt to the priorities within luxury investments worldwide.
The global high-net-worth population represents only 0.1 percent of the global adult population, yet it commanded over one-fifth of the world’s total wealth in 2018.
Despite being a small consumer segment, the high-net-worth market is highly profitable for brands and businesses on a global scale.
One of the biggest challenges of the luxury market is correctly assessing the potential of high- and ultra-high-net-worth individuals (HNWI) worldwide to later identify and reach these consumers.
Many marketing plans of luxury initiatives fail in the first step of correctly dimensioning the population of potential luxury consumers.
In an era of global economic uncertainty, weak income growth and rising inequalities impede the expansion of the middle class and undermine its role as the driver of consumer markets. This is also a mega-trend that Euromonitor International identified as the “Middle-Class Retreat.”
Who are the “right” consumers?
A common approach to reach the consumers who are more likely to invest in luxury goods items is by solely measuring their income. Those with high incomes are more likely to possibly purchase luxury products.
However, if solely this approach is considered when targeting consumers, a significant portion of potential buyers would be left out the group.
For instance, in the United States, the second-largest luxury goods market worldwide, there were 1.2 million “asset-rich and income-poor” adults in 2018 – meaning those with a disposable income below $10,000 and a net wealth of $1 million.
If only income was considered when implementing strategies, significant opportunities would be overlooked.
Wealth Index is Euromonitor’s work to develop enhanced analysis of the global luxury market by comparing 84 key markets with the combination of 21 indicators covering wealth, consumer expenditure, savings, households, insurance and pension. This index ranking can lead to a better understanding of priorities within luxury investments worldwide.
To better assess the true potential market for luxury goods, it is important to consider other factors beyond wealth or consumer expenditure.
Savings, insurance, pension funding and expenditure on inconspicuous consumption are also important attributes when defining who the true consumers of luxury items are.
Considering a series of such a diversified scope of indicators, it is possible to standardize potential by using a wealth index.
Wealth is complex
The use of such index to drive strategies in a particular country is especially useful for luxury goods companies, as many of them have a more long-term view on businesses.
It is important to establish a strong base in markets where they operate as to possibly harvest larger profits in the future.
A clear example of the use of such index may be seen in Latin America.
While the Mexican market has been in the spotlight over the last years, that does not mean that it presents the highest index among its peers in the region.
In fact, Mexico ranks second in Latin America when analyzing the wealth index with a total score of 23 points in 2018, behind Brazil, which presented 31 points.
The use of this index can lead to a better understanding of priorities in the long run.
Apart from analyzing short-term performances, the index may guide strategies in countries that present a significant potential to flourish over the coming years.
Companies who continued investing in markets despite short-term performance are expected to be the first to also outperform when momentum becomes better.
By 2030, the global HNWI population is set to rise to 93.3 percent over 2017 and China is expected to present the biggest jump, from the seventh position to become the fifth country in the wealthiest population ranking.
In the ranking of total wealth, Chinese development is even more impressive: from the current fourth position, it is expected to achieve second place by 2022.
MAPPING THE most interesting countries and their projected developments is key to planning future investments.
By estimating a complete diagnosis of the magnitude of wealthy consumers, companies and brands can have a more assertive strategy to go further in the challenging the luxury industry.
Elton Morimitsu and Guilherme Machado are research analysts at Euromonitor International
Elton Morimitsu and Guilherme Machado are research analysts at Euromonitor International, based in São Paulo, Brazil.
Reproduced with permission from Luxury Society, a division of Digital Luxury Group. Adapted for style and clarity.
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