South Koreans are the world’s biggest spenders on personal luxury goods per capita, according to Morgan Stanley, whether it’s calf-leather Italian Prada bags or classic, checkered British Burberry trench coats.
According to the investment bank, total South Korean spending on personal luxury goods will increase 24% to $16.8 billion in 2022, or about $325 per capita. According to Morgan Stanley estimates, this is far more than the $55 and $280 per capita spent by Chinese and American nationals, respectively.
Luxury brands have also reported record sales in Korea.
Moncler reported that its revenue in South Korea “more than doubled” in the second quarter compared to the previous quarter before the pandemic.
Richemont Group, which owns Cartier, said Korea would be one of the regions where sales would increase by double digits in 2022 compared to the previous year and two years ago.
While China lockdowns contributed to a 7% drop in 2022 retail performance, Prada said the drop was “mitigated by strong performance in Korea and South East Asia.”
According to Morgan Stanley analysts, the demand for luxury goods among South Korean buyers is driven by both an increase in purchasing power and a desire to outwardly demonstrate social standing.
“Appearance and financial success can resonate more with consumers in South Korea than in most other countries,” analysts wrote in the report.
In Korean society, displays of wealth are also more socially acceptable. According to a McKinsey survey, only 22% of Korean respondents think showing off luxury goods is in bad taste, compared to 45% of Japanese and 38% of Chinese.
The rise in household wealth also boosted demand for luxury goods. According to Bank of Korea data, the country’s household net worth increased 11% in 2021. Real estate accounts for approximately 76% of Korean household wealth, and prices have risen significantly since 2020.
The investment bank also mentioned that luxury houses have enlisted the help of Korean celebrities to help fuel demand.
“Nearly all of the major Korean celebrities are brand ambassadors of the leading luxury houses,” the report noted, like Fendi and actor Lee Min-Ho or Chanel and rapper G-Dragon.
Dior made Blackpink singer Rose the face of its HardWear collection, which was “very well-received” and doubled sales, according to the fashion house.
However, Bain & Company advised against using per capita metrics to measure luxury good consumption.
“Luxury by definition is not a mass market product,” Bain & Co partner Weiwei Xing told CNBC.
“I would suggest to prorate the total luxury spending by number of population that’s middle class and above, which would be a more meaningful measure to reflect attitude and consumption towards luxury,” Xing said, adding that would narrow the gap.
Nonetheless, Morgan Stanley believes that the thriving Korean luxury market is a “good preview” of what the Chinese luxury market, which it describes as “underpenetrated,” could become. According to the analysts, the two countries have similar attitudes toward luxury items as status symbols.
Currently, South Koreans spend more than six times more per capita on luxury goods than Chinese consumers.
McKinsey forecasted global luxury market growth of 5% to 10% in 2023, buoyed by demand from the United States and China.
“We expect growth to resume after China recovers from the current Covid waves, which should happen by the first quarter,” Xing said.
(Adapted from CNBC.com)
Categories: Economy & Finance, Strategy, Sustainability, Uncategorized
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