Accounting for 4 percent of global luxury sales, South Korea has become a pillar of the international $4 billion luxury industry, finds a new report from McKinsey, an international consulting firm advising leading companies on issues of strategy, organization, technology, and operations, according to Michelle Moshelian writing on www.israelidiamond.co.il. Compared to China or Japan, South Korea’s luxury goods market looks small. But its growth and diversification should give luxury-goods makers pause, suggests McKinsey.
The country weathered the 2008-09 global economic crisis surprisingly well, and although GDP took a substantial hit for two quarters, the market quickly regained momentum in mid-2009. South Korea is now expected to be among the first countries to exit the recession, with a GDP growth rate forecast at 5.8 percent for 2010, according to a recent Korean Ministry of Strategy and Finance announcement.
South Korea’s Luxury Market Surpasses Expectations
Unlike Japan, Europe, or the US, where the sale of luxury goods has either stagnated or shrunk, the market for high-end designer clothing and accessories is thriving in South Korea. Between 2008-09, sales rose 16.7 percent in department stores, the main channel for the sale of South Korean luxury goods; after China, that was the fastest rate for any major market in the world.
McKinsey reckons South Koreans’ love for luxury will continue basing their expectations on independent research recently conducted on South Korean luxury goods customers’ purchasing behaviors and their attitudes toward luxury goods. McKinsey’s research suggest that the persistent strength in the South Korean luxury market is driven by two important “soft” factors: a love of luxury and peer pressure.
South Koreans are ‘luxury friendly’ as few cultures are. For example, only 5 percent of South Koreans say they feel guilty about how much they spend on high-end products, compared to 10-15 percent in other developed countries. Only 5 percent of respondents in Korea said that “I think buying luxury goods is a waste of money”.
Showing Off Luxury Goods
The pressure to conform, in the sense of keeping up with the neighbors, may also be more intense than other countries. South Korean luxury consumers stay on top of trends, and showing off their latest luxury purchases seems to come naturally. While 45 percent of Japanese and 38 percent of Chinese believe that “showing off luxury goods is in bad taste”, only 22 percent of Koreans do.
In McKinsey’s survey, 60 to 70 percent of respondents mention finding enjoyment in “the functional or emotional value of wearing luxury items” as the leading reason for increasing purchases. The rising awareness of products and the improved convenience offered by distribution channels were the next most-cited reasons.
McKinsey’s research identifies a number of interesting category, consumer, and channel trends that collectively point to a continued surge in luxury consumption in South Korea. With the economy showing signs of recovery, McKinsey expects the return of buyers who changed their habits due to the global economic crisis sooner rather than later. Some 80-90 percent of shoppers indicated that they intend to start buying luxury products again.
Watch and Jewelry Sales Double While Fashion Apparel Grows 5%
Sales of luxury bags and shoes grew significantly in 2009 (10 to 30 percent, depending on the label), while watch and jewelry sales more than doubled. Fashion apparel, however, grew less than 5 percent. Some luxury players’ apparel sales even regressed from 2008 figures. There is also a general trend among shoppers in South Korea to trade up rather than down. For watches/jewelry, 19 percent of those surveyed said they had recently traded-up to pricier brands.
New Luxury Consumer Segments are Emerging
Wealthy women in their 40s to 60s have been the traditional core market for luxury brands. But with fewer financial responsibilities, increased openness to new ideas, and an eagerness to define themselves through how they dress, South Koreans in their 20s and 30s have emerged as an exciting new demographic for retailers. At Lotte’s Avenue L, a high-end branch of the Lotte department store chain focused on luxury goods, 20- to 30-year olds comprised 35 percent of shoppers in 2006, but 44 percent in 2009. This should be a particularly encouraging sign for retailers since, compared to older shoppers, younger ones tend to spend greater portions of their disposable income on high-end clothing and accessories.
Men are another emerging market. While women remain the primary luxury market, a fashion industry magazine reported a 29 percent jump in male buyers, compared to 12 percent among women.
New Luxury Channels are Coming of Age
While department stores remain by far the most important channel for luxury in South Korea, new channels, such as premium outlets and online shops, are generating traffic. Perhaps not surprisingly, it is South Korea’s major department store chains—Lotte, Shinsegae, and Hyundai, which together account for three quarters of all luxury sales—that are helping to develop these newer channels and thus extending their influence through diversification.
At Shinsegae, the number of foreign luxury labels for sale has risen from fewer than 20 in the early 2000s to almost 300 by 2009. Greater variety has increased competition among brands, and driven changes in shopper behavior.
E-commerce is emerging as a useful marketing, communications, and e-commerce platform. Online shopping is hardly new in South Korea, which is one of the most wired countries on the planet.
Luxury Labels Entering the South Korean Market
Following the lead of department stores, luxury labels need the capability to coordinate a variety of sales channels, from operating proprietary boutiques (including new premium outlet locations) to selling online, suggests McKinsey.
Regarding selling online, investing in a good Korean language-friendly website is imperative, but not sufficient, notes McKinsey. Especially in the luxury sector, looks and details matter—photos must be of excellent quality and the product descriptions need to be well-written. The website is increasingly becoming the first place shoppers look to get more information about products and brands, so the same degree of thought and precision that goes into developing magazine advertisements or flagship stores must go into the digital channel.
Elle Atzine
Elle Atzine, an online community site launched last November by fashion magazine Elle Korea, is emerging as the “go-to” place for consumers to check out luxury products before visiting land-based stores. Elle Atzine provides a shopping environment for potential customers that approximates the in-store experience by offering a 3D showroom. Leading luxury brands such as Gucci, Burberry, and Chaumet—26 as of this writing—have opened virtual stores within Elle Atzine, and over 100 fashion and cosmetics brands are planning to enter and promote products with site visitors, whose numbers had already hit 0.3 million subscribers by month five after launch. Elle Atzine has also launched ‘Atzine mobile’, an application for Android-based smartphones, such as Samsung’s Galaxy.
