I read an article this morning that surprised me, but it shouldn't have. The Wall Street Journal reports that China is increasingly becoming a major player for luxury goods. Earlier this week I wrote about luxury retailers' troubles but better performance recently. It looks like you can add the Chinese to something they're optimistic about.
The WSJ article focuses on China, but more broadly, it says:
Emerging markets will account for at least 80% of growth in the luxury-goods sector, averaging around 9% a year, compared with 2% in the developed world, according to Francesca Di Pasquantonio at Deutsche Bank.
So much for luxury retailer's attention being focused on the more established economies. But this makes sense. For example, let's say that the top 1% of earners in any given nation can afford to splurge regularly on luxury goods. With the current U.S. population of around 307 million, that amounts to a measly 3 million potential customers for luxury retailers. But with China's population of 1.3 billion, that amounts to 13 million potential high-end consumers.
Even if the percentage is lower in a developing nation, since it isn't as wealthy as a more robust economy, the raw numbers still likely exceed those in developed economies. The reality is that, overall, emerging populations far outweigh the number of people living in current economic superpowers. Thus, it makes perfect sense that firms peddling luxury goods would gravitate towards those nations for new growth. And since emerging markets are likely to recover from the global recession more quickly than everyone else, luxury retailers are likely paying even more attention to those markets.