a luxury retail bric in the wall

Between them, BRIC economies account for three billion people and are among the fastest growing on the planet. Together they have successfully bucked the recessionary trend experienced by North America and Western Europe.

Part of the fall-out of such rapid economic growth is that the established rich and emerging BRIC middle classes are now enjoying their wealth through buying into Western luxury. According to Euromonitor the BRIC economies accounted for 11% of all global luxury sales by value last year, and will achieve 16% by 2017. China, by far the star of this trend and the big prize in the luxury goods market, has seen its consumption triple over the last five years. Forecasters say that by 2017 China will double in value again, overtaking Western Europe and Japan and establishing itself as the second biggest luxury market in the world after the US.

The country is the Holy Grail for luxury retailers, with innumerable Western store launches, not just in the major cities, but also in second and third tier markets too. Some names dominate: the forty year old Mulberry brand has a Beijing flagship and plans thirty more stores for the region, Dunhill which opened its first store in Shanghai twenty years ago now has one hundred stores and Burberry has fifty five stores across the country and nine in Beijing alone. But, will the High Street brands be able to replicate the success of their designer and luxury counterparts? Many American and European clothing brands have ambitious plans for China and others are entering the market for the first time this year. They are competing in an apparel market that was worth £150bn last year and if they get it right there are undoubtedly profits to be made.

Inditex, owners of Spanish fast fashion brand Zara, definitely lead the pack with 350 stores across mainland China. Sweden’s H&M opened 32 outlets last year and now has 78 stores in China. Analysts believe the brand will treble its store numbers over the next 3 years. Meanwhile, Gap aims to have 45 stores by the end of 2013. Others have so far embraced expansion on a more modest scale. M&S opened its first store in Shanghai in 2008 and now plans to increase numbers to 18 across the country. Top Shop has been even more tentative, making do with a pop-up store during last year’s Beijing Design Week, albeit a move that could herald a more permanent foothold. Hollister, a sub brand of Abercrombie & Fitch, is also eyeing up the Chinese mainland and Forever 21 has flagships in both Beijing and Shanghai. John Lewis Partnership is also exploring shops in China, a move which would mark its first foray outside the UK.

Closer to home, western retailers have not been slow to grasp the opportunity presented by Russia’s fast growing economy. There is also very good news for challenger European and American brands, as pointed out by Per Kaufman, chief executive of Russian operations for Ikea, who says, “It is a bit like the Wild West a hundred years ago. There is such demand and dynamism in the market that you can succeed even if you’re not the top retailer.”

Our own involvement in Russia with Nokia’s Vertu brand and Tommy Hilfiger shows that upmarket stores in Moscow and St Petersburg are already no different from those of any other major capital. Russian consumers, like their Chinese counterparts, see Western brands as a means of self definition. With the average Russian income having increased sixteen fold in the past 12 years it’s no longer only those on the biggest salaries that can wear foreign clothes and use foreign cosmetics, even though it may still be the preserve of the rich to drive one of the 15,000 Jaguars and Landrovers that will be sold in Russia this year, or to own an i-pad. Again, like China, brands such as Zara have responded to the increasing middle class desire for western fashion with aggressive growth plans. The company has a plan to open 50 new shops a year, and names like Hamleys and Debenhams are rushing to join early entrants like M&S.

It will be interesting to see what other developments take place in the two most dynamic BRIC markets over the course of the next 12 months. But, one key thing is evident right now, western retail expertise will be in high demand alongside the influx of western products. rpa:group for example have been working with a major Russian retailer on their corporate identity and the retail concept design of one hundred plus stores. And the message is clear, Russians like the reassurance of western design, even if the goods they are buying are Russian.

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