Verdict Research forecasts that global expenditure on luxury branded products will hit US$450 billion by 2012 as the rate of growth doubles. As wealth increases across the globe, the demand for luxury products will accelerate with the market, currently worth US$263 billion, boosted by high demand from emerging economies, wider demand from mature markets and new channels.

Global expenditure will grow by 71 per cent over the next five years. In its latest report, Global Luxury Retailing 2007, Verdict predicts the global market for those typical luxury goods bought through retailers (fashion/clothing, accessories, watches and jewellery, fragrance and cosmetics, and homewares), will more than double in growth over the next five years as consumers in emerging markets become wealthier, and luxury brands stimulate higher spend from consumers in mature markets. Growth of 71 per cent between 2007 and 2012 will be more than double the 30.7 per cent growth in consumer expenditure on luxury branded products over the past five years.

Richer consumers in fast growing economies will account for the greatest growth. Though Japan has been a major market for luxury brands, its weak economy has dampened sales over recent years. However, the Asia Pacific region, which includes China and India – but not Japan – will nearly treble in value by 2012 as newly wealthy consumers seek to underline their status with top end goods.

The region will account for nearly a quarter of global spending at US$113 billion overtaking the Americas as the second largest market. Indeed, including Japan, where growth will continue to be muted, this region is in danger of taking Europe’s crown as the most valuable market – accounting for 36.2 per cent of the total by 2012 compared with Europe’s 36.4 per cent.

That said even though Europe, home of the majority of luxury brands, is the most mature market, it still has high growth potential outperforming most other retail sectors. A major factor is luxury tourism – new luxury consumers want to travel and buy from brands’ home countries. Furthermore within Europe, Eastern European countries will create more demand for luxury goods and Russia will not only become a significant market, but Russians will continue to spend their money throughout Europe. By 2012 the European market is expected to be worth US$163 billion.

In both mature and emerging markets there will be greater demand for luxury products – particularly watches and jewellery. Verdict forecasts that watches and jewellery will become the second largest sector after fashion and clothing. Clothing commands the largest share of the market – 44.3 per cent in 2007, but it will begin to lose share as other product sectors increase theirs. While accessories have enjoyed strong growth as more and more operators exploit the demand for designer handbags, jewellery and watches will become the next ‘must have’ luxury fashion items.

Brands have been producing new high-end pieces in both jewellery and watches, which is stimulating interest. Additionally the high intrinsic value of jewellery and watches, because of the high cost of their components, makes them an attractive luxury investment to a wide range of consumers – not just the fashion conscious or ultra-rich. Furthermore, the higher usage of precious jewellery in developing economies will boost the sector.
Further growth is being generated by brands taking greater control of their distribution channels. Luxury brands have brought more of their retail networks under direct control, ensuring the appropriate delivery of the brand experience and, in the process, increasing sales.

The internet will be another channel and driver of demand. Many brands have introduced transactional websites over recent years, and more will follow. This will enable brands to access consumers beyond their reach via traditional channels, and generate new revenue streams. This channel is also highly suitable for accessories, watches and jewellery, where fit is not an issue.