The luxury goods business is enjoying strong growth in the developed world, especially in China and the emerging markets. However, there are some challenges in the developing world that must be addressed to ensure the long-term sustainability of luxury brands. The biggest challenge is access to financing. As the global financial crisis continues to hit economies around the world, lenders have become much more strict about lending money to small businesses.
One problem that many developing markets face is poor infrastructure. Lack of quality infrastructure and maintenance costs have deterred many small entrepreneurs from making large investments in building new store fronts or constructing a new luxury goods store. Luxury goods businesses that lack a proper and efficient distribution system run the risk of going out of business, as the cash flow dries up and financial losses mount. If this happens, then distribution costs must rise. This makes the luxury goods market even harder to operate.
Another issue that is facing the luxury brand sector is the rise of more niche luxury brands. As a result, the luxury goods market is becoming saturated with brands that are too similar to existing luxury brands. A successful luxury brand requires innovation and creativity in design, distribution, marketing and sales.
This has led to a reduction in innovation and a move away from producing designer apparel in emerging markets for affordable luxury brands. The premium designer apparel market is shrinking in developed countries such as China and India. However, emerging markets such as Brazil and Mexico offer great opportunities for innovative luxury brands to make inroads into the high-end market. Innovation and creativity can be applied in almost any area, including clothing, footwear, accessories, handbags and accessories. It is not just about investing in labor-intensive production processes that yield lower profits for the brand.
In Asia Pacific, there are now burgeoning middle class markets where luxury items are expected to pay premium prices. This includes high-end branded clothing, accessories and electronics. Fast growth in these markets has been made possible by technological advances such as digital printing, rapid assembly and machine embroidery. In India and Indonesia, mass-production methods of apparel are replacing village-style village trading. Innovative designs and fabrics are attracting customers from established luxury brands such as Prada and Gucci.
These new affluent markets are also ideal areas for developing country luxury brands to enter. Many Asian countries have a rapidly expanding middle class. They represent an untapped source of revenue for developing countries. Some luxury brands are already making inroads into these markets. As more developed countries look to export jobs and goods to Asia, they will face stiff competition from brands based in Asian countries.
Middle class consumers in developed countries are open to new luxury brands targeting lower-end customers. In order to compete in the luxury brand market, luxury brands must offer products that create a sense of luxury for the customer. Products such as evening wear, sports equipment, handbags and jewelry are all examples of luxury goods that create a sense of style for the consumer. The combination of a fashionable product and a comfortable, affordable product is one of the keys to success for luxury brands.
Middle class consumers are not the only consumers of luxury goods. Brand name fans are also becoming discerning shoppers. Luxury brand supporters can provide a high-end product at a reasonable price. For this reason, luxury brands face stiff competition in the marketplace. Although this is good news for consumers, this means that careful planning and marketing strategies are necessary to succeed in this growing marketplace.