France is the ninth largest economy in the world and the third biggest in Europe. With at least 79m foreign tourists per year, it is the most visited country in the world and maintains the third largest income in the world from tourism (Ledbury Research).
France is also arguably the home of industrialised luxury goods, which – under the direction of Bernard Arnault – has rapidly evolved from a scattered collection of craftsmen and women, to a consolidated megalith contributing €217 billion to the global economy (Bain & Co).
LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury products group,recorded revenue of €29.1 billion in 2013, an increase of 4% over the previous year. Organic revenue growth was 8%. Kering has not yet released full year results, but in Q3 2013 reported €4,696 million in revenue for the nine months ending September 30.
Collectively, European brands account for at least 70% of the global luxury goods market, driven predominantly by those made in Italy and France. The output of the sector in 2010 was estimated to be over €440 billion, approximately 3% of European GDP (Comité Colbert).
“ Collectively, European brands account for at least 70% of the global luxury goods market ”
The sector is a key exporter, with approximately 60% of output exported. Comité Colbert estimates suggest that total exports for the sector were approximately €260 billion in 2010, representing over 10% of all exports from Europe.
The European luxury sector employs approximately one million workers directly, and at least a further 500,000 workers indirectly. Key products manufactured in France include leather goods, textiles, fine wines, fine spirits and high jewellery to name but a few. The luxury hospitality sector is also a key driver of employment and revenue.
Comité Colbert believe that the European luxury sector contributes in excess of €110 billion to the tax authorities through sales, corporate and export taxes and through the personal income tax paid by workers in the sector. The impact of such contributions on France alone has not yet been measured, but as one of the biggest producers and exporters, the implications are clear.
Christian Dior, Paris
Wealth
France is also home to some of the most important – and wealthiest – names in luxury. Bernard Arnault, founder and chairman of LVMH, has rather famously remained a French citizen in the face of proposed tax reforms for the wealthy, with an estimated wealth of €21.2bn.
His extraordinary affluence is trailed by that of French nationals Bertrand Puech & the Hermès Family (Hermès), François Pinault & Family (Artemis, Kering) and Alain Wertheimer & Family (Chanel), according to Ledbury Research.
In 2013, France suffered one of the largest absolute drops in terms of Ultra High Net Worth (UHNW) population, for which many blamed Francois Hollande’s proposed 75% marginal tax rate on those earning over €1 million.
“ In 2013, France suffered one of the largest absolute drops in Ultra High Net Worth population ”
Though the controversial plan was eventually abandoned, local real-estate agents believe that it sparked an initial exodus of France’s super rich, as luxury properties flooded the market. Corporate executives complained that it weighed on their ability to attract and retain highly-paid workers (Wall Street Journal).
Late in 2013, pressed by opposition MPs, the ministry of finance released official emigration figures for 2011 showing that departures had doubled from the previous year to nearly 40,000. This figure is estimated to be as high as 60,000 in 2012, though official statistics have not yet been released (Telegraph).
At the top of the pyramid, the UHNW population (those with net assets of US$30 million and above) dropped from 4,415 individuals to 4,100 between 2012 and 2013 (-7.1%). The collective wealth of these UHNW individuals in France also dropped by 11.2%, and now stands at $435 billion (Wealth X).
Galeries Lafayette, Paris
Market CharacteristicsA drop in local wealth has done little to dampen luxury consumption in France. In 2013, retail sales of luxury goods totalled €16.8 billion, a figure that is expected to climb to €19.8 billion by 2018. France is still ranked in the top 5 luxury markets based on spending, alone accounting for 4% of all global sales (Euromonitor).
According to Bain & Company, French brands command 25% of total market share when it comes to luxury goods. French conglomerates – namely LVMH and Kering – now own 29% of the market compared to 25% in 1995 (Bain & Co).
Despite on-going unfavourable economic context, demand for luxury goods in the country has continued to increase, though such growth is slowing. The market grew at an average rate of 4.35% from 2009 to 2011, dropping off to 2.7% in 2012 and 1.8% in 2013.
“ The luxury market grew at an average rate of 4.35% from 2009 to 2011, dropping off to 2.7% in 2012 ”
The consumption market is heavily underscored by tourism and the lure of Paris. Tourist spending currently drives 60% of revenues in France (Bain & Co).
France remained the Number One destination for Tax Free Shopping in the world in 2013, just ahead of the UK and Italy. The top spenders in December were of Chinese nationality (34% of total spend), up 11% on December 2012. Tourists from Russia, United States, Japan and Singapore round out the top five biggest spenders in the country (Global Blue).
“Luxury shopping is becoming increasingly important for the travel industry and is today a major reason for travelling for large numbers of tourists,” explains Fflur Roberts, Head of Luxury Goods at Euromonitor International. “France, is a favourite destination for luxury shopping, especially for BRIC travellers where product and brand availability, status and price have all been key drivers behind this trend.”
“French luxury retailers and brands have responded well to this trend by introducing China union pay terminals and employing Mandarin and Russian speaking sales staff which has helped to boost sales.”
Hotel Le Maurice, Paris
But it is not only emerging market luxury consumers that are travelling to France. “An increasing number of wealthy tourists from developed markets are shopping for luxury in France’s luxury hotspots such as Paris,” confirms Fflur.
“In 2012 luxury brand own stores and department stores continued to be the most important distribution channel for luxury goods. They attracted a great number of tourists who came to the capital to buy luxury goods.”
One category in particular that is driving growth in luxury goods is menswear, as globally, men increasingly pay attention to their appearance and consequently become more disposed to purchase luxury goods. Sales of men’s luxury goods has played a key role in astronomical growth in Asia, so its perhaps unsurprising to see this trend replicated abroad as more wealthy Asians travel to France.
“This trend boosted sales of specific categories of products for men, such as men’s designer tops and shirts, but also men’s luxury bags, small leather goods and jewellery,” explains Fflur Roberts. “In general, these categories performed better than those for women, in part because there is higher potential for growth. They were undeniably a driver for good performances of the luxury goods market.”
“ The consumption market is heavily underscored by tourism and the lure of Paris ”
ForecastsIn the coming five years, the luxury goods market is expected to register a similar performance compared to that of the previous five years. This stability will be enabled by the performances of several categories, namely wines & spirits, fashion and tourism (Euromonitor).
“Even though French people are drinking less, when they purchase alcoholic drinks they tend to prefer high quality products. As they will continue looking for pleasure, they will keep buying the best fine wines & spirits.”
“Tourism and fashion will also boost the performances of luxury travel goods, luxury accessories, luxury jewellery and timepieces and designer apparel. Men will also continue to invest in their personal appearance with the purchase of luxury goods.”
“That said, poor prospects of an improvement in the country’s economic situation will continue to limit consumer spending and consequently growth of some categories, such as luxury writing instruments and stationery or super premium beauty and personal care.“
Luxury electronic gadgets and luxury tobacco are also expected to witness a worsening performance, impacted by the growing penetration of smartphones for the former and the law banning tobacco in public areas for the latter (Euromonitor).
Dom Perignon, Champagne
ChallengesAs the world’s most visited country, with a luxury industry that depends on tourists for more than half of it’s €16 billion revenues, a decline in tourism is the most obvious threat to continued prosperity in the sector. Not only for the consumption of luxury goods, but also occupancy of the city’s myriad of luxury hotels.
And indeed, in 2013 there were several reports of thieves in Paris targeting Chinese and Asian tourists on the streets and the metro. The most audacious thefts occurred on the A1 motorway from the airport, where on two occasions, organised gangs attacked tourist minibuses stuck in traffic jams (The Guardian).
The Paris police responded by introducing 26 measures to promote the safety of tourists, with a greater police presence in areas popular with Asian visitors. The long-term aim is to change their cash habits by promoting awareness and working with the Chinese, Japanese and South Korean embassies.
Reports also surfaced that Paris was fast losing Chinese tourism revenue to London, as UK Prime Minister David Cameron continued to improve economic ties with China. Official British statistics confirmed that Chinese visitor spending in the first half of 2013 grew by a massive 132% year on year, totalling £181 million (Jing Daily).
France’s government is making moves to better facilitate Chinese tourism. Chinese visitors to France are also set to get fast-track visas, announced as part of celebrations marking the 50th anniversary of Paris establishing full diplomatic ties with Communist China. The new visa regime – under which travel requests from Chinese visitors will be processed within 48 hours – came into force on January 27 2014 (RFI).
The alleged ‘exodus’ of local wealth in Paris, due to uncertainty regarding taxation legislation could also be harming local consumption. Though this decline has been registered for quite some time, and as yet, has been offset by travelling consumers.
The biggest threat to the local economy would be a concurrent sharp decline in local consumption and tourism spending. France and Paris in particular must continue to work to remain an attractive destination for affluent travellers in both emerging and developed markets.
Hermès, Leathergoods
ConclusionDespite economic pessimism and a controversial political situation, the outlook for France’s luxury economy remains positive. Luxury goods sales are expected to continue to grow each year between 2.3% and 4.1% until 2018. Both LVMH and Kering continue to report revenues in the billions, despite a slowdown in percentage revenue growth.
The continued financial support and success of large French conglomerates looks set to protect and bolster the local manufacturing economy, as Made in France continues to represent a seal of quality in luxury around the globe.
And most importantly, the industry will always have Paris. A tourist destination in its own right but one intrinsically linked to the mythical world of luxury. Emerging market consumers will continue to favour the destination and purchase their French luxury goods in the capital.
Asian luxury hoteliers will continue to open (such as The Peninsula in 2014), following the recent introduction of Shangri-La and Mandarin Oriental. Iconic properties such as Hotel Crillon and The Ritz will re-open their doors after extensive refurbishment, bolstering the number of available palace hotel rooms in the city.
An increasing understanding of fine wines and spirits in emerging markets will continue to drive tourism to the famed regions of Champagne, Cognac and Bordeaux, just as the French Riviera will continue to lure the world’s most affluent by super yacht or private jet.
Growth may be slowing but perhaps this is better described as ‘normalising’ after years of exponential double-digit increase. At the end of the day the industry contributes billions to the French economy, whether it be through consumption, production or even taxes, and France should be working to facilitate its prosperity and maintain the country’s attractiveness as a global tourist destination.
“Even though French people are drinking less, when they purchase alcoholic drinks they tend to prefer high quality products. As they will continue looking for pleasure, they will keep buying the best fine wines & spirits.”
“Tourism and fashion will also boost the performances of luxury travel goods, luxury accessories, luxury jewellery and timepieces and designer apparel. Men will also continue to invest in their personal appearance with the purchase of luxury goods.”
“That said, poor prospects of an improvement in the country’s economic situation will continue to limit consumer spending and consequently growth of some categories, such as luxury writing instruments and stationery or super premium beauty and personal care.“
Luxury electronic gadgets and luxury tobacco are also expected to witness a worsening performance, impacted by the growing penetration of smartphones for the former and the law banning tobacco in public areas for the latter (Euromonitor).
Dom Perignon, Champagne
ChallengesAs the world’s most visited country, with a luxury industry that depends on tourists for more than half of it’s €16 billion revenues, a decline in tourism is the most obvious threat to continued prosperity in the sector. Not only for the consumption of luxury goods, but also occupancy of the city’s myriad of luxury hotels.
And indeed, in 2013 there were several reports of thieves in Paris targeting Chinese and Asian tourists on the streets and the metro. The most audacious thefts occurred on the A1 motorway from the airport, where on two occasions, organised gangs attacked tourist minibuses stuck in traffic jams (The Guardian).
The Paris police responded by introducing 26 measures to promote the safety of tourists, with a greater police presence in areas popular with Asian visitors. The long-term aim is to change their cash habits by promoting awareness and working with the Chinese, Japanese and South Korean embassies.
Reports also surfaced that Paris was fast losing Chinese tourism revenue to London, as UK Prime Minister David Cameron continued to improve economic ties with China. Official British statistics confirmed that Chinese visitor spending in the first half of 2013 grew by a massive 132% year on year, totalling £181 million (Jing Daily).
“ In 2013 there were several reports of thieves in Paris targeting Chinese & Asian tourists ”According to a survey by the Paris magazine Challenges, during the busy summer and autumn tourist seasons in 2013, Chinese tourist spending on luxury goods in France witnessed a decline. Though the report did attribute declining Chinese luxury spending in France mainly to watches, which potentially could have been affected by the Chinese government’s on-going anti-extravagance campaign.
France’s government is making moves to better facilitate Chinese tourism. Chinese visitors to France are also set to get fast-track visas, announced as part of celebrations marking the 50th anniversary of Paris establishing full diplomatic ties with Communist China. The new visa regime – under which travel requests from Chinese visitors will be processed within 48 hours – came into force on January 27 2014 (RFI).
The alleged ‘exodus’ of local wealth in Paris, due to uncertainty regarding taxation legislation could also be harming local consumption. Though this decline has been registered for quite some time, and as yet, has been offset by travelling consumers.
The biggest threat to the local economy would be a concurrent sharp decline in local consumption and tourism spending. France and Paris in particular must continue to work to remain an attractive destination for affluent travellers in both emerging and developed markets.
Hermès, Leathergoods
ConclusionDespite economic pessimism and a controversial political situation, the outlook for France’s luxury economy remains positive. Luxury goods sales are expected to continue to grow each year between 2.3% and 4.1% until 2018. Both LVMH and Kering continue to report revenues in the billions, despite a slowdown in percentage revenue growth.
The continued financial support and success of large French conglomerates looks set to protect and bolster the local manufacturing economy, as Made in France continues to represent a seal of quality in luxury around the globe.
And most importantly, the industry will always have Paris. A tourist destination in its own right but one intrinsically linked to the mythical world of luxury. Emerging market consumers will continue to favour the destination and purchase their French luxury goods in the capital.
“ Luxury goods sales are expected to continue to grow each year between 2.3% & 4.1% until 2018 ”
Asian luxury hoteliers will continue to open (such as The Peninsula in 2014), following the recent introduction of Shangri-La and Mandarin Oriental. Iconic properties such as Hotel Crillon and The Ritz will re-open their doors after extensive refurbishment, bolstering the number of available palace hotel rooms in the city.
An increasing understanding of fine wines and spirits in emerging markets will continue to drive tourism to the famed regions of Champagne, Cognac and Bordeaux, just as the French Riviera will continue to lure the world’s most affluent by super yacht or private jet.
Growth may be slowing but perhaps this is better described as ‘normalising’ after years of exponential double-digit increase. At the end of the day the industry contributes billions to the French economy, whether it be through consumption, production or even taxes, and France should be working to facilitate its prosperity and maintain the country’s attractiveness as a global tourist destination.
Source: LuxurySociete
