Where the money is
By Julian Lee | smh.com.au | 18 April
If there is one thing that Australians can't seem to get enough of, it is luxury. Greater personal wealth, slick marketing and, yes, finer taste have converged to create the perfect conditions for companies in the business of selling us luxury.
There are more high net-worth Australians than ever before, according to a global index, and their appetite for luxury - be it cars, champagne, watches, jewellery and/or accessories - shows no sign of abating. To date, the jitters in the global economy have done little to deter Australians from spending up a storm on big-ticket items.
The sellers of luxury goods cannot keep up with demand, which is so strong that champagne makers have increased their prices and Swiss watchmakers have been forced to open waiting lists. It is a marketer's paradise and one that the companies believe (or should that be hope) will continue despite all the signs that consumer confidence is waning.
Part of the spending spree could be explained by the broad spread of wealth in Australia, says Gregory Smith of management consultants Capgemini, which, together with the investment bank Merill Lynch, conducts an annual survey of the world's richest people.
In its most recent World Wealth Report, the group found that the number of people with more than $US1 million ($1.07 million) in assets living in Australia (excluding property) rose by 10.3 per cent in 2006 over the previous year, faster than the global growth rate of 6 to 8 per cent. And while their assets are largely sitting at the lower end of the scale, there are more of them, says Smith. There are now 161,000 such wealthy people living in Australia with an accumulated wealth of $548 billion, putting the country into the top 10 for the first time.
Furthermore, says Smith, because Australian money is relatively new, those who are making it are still celebrating their new-found wealth by spending it.
"I would say they are still in the early stages and they are not thinking about the next generation or even giving it away as people tend to do later on [in their lives]. These are people who are, by and large, still running businesses and they are time-pressured and they will spend money on things they are passionate about," says Smith.
So we are a bunch of free-spending nouveax riches who can't get enough bling, right? Wrong, says Naomi Parry, founder of Black, an events and public relations company specialising in the luxury market.
"A lot of commentators infer that what fuels this market is profligate spending," Parry says. "It's not. It's increasing sophistication that fuels it. Australians, once a upon a time, couldn't pick a Fendi from an Oroton bag. Now, they not only can tell you it's a Fendi, they can tell you which season and collection it's from and why it's worth the money."
Steven Rom doesn't need Capgemini's research to tell him something he already knows. As the chief executive of Avstev Group, which markets and distributes luxury Swiss watches, he is fully aware of the boom that is taking place in Australia.
He can't sell enough Raymond Weil, Girard-Perregaux and Frederique Constant watches. Sales in the first half of the financial year are up 30 per cent on the corresponding period last year, he says. Rom puts the demand for the finer things in life down to the fact that we are travelling more and are more discerning in our purchasing. We are no longer prepared to put up with second best; now we have the money, we don't have to.
But he also says that those who can afford a diamond-encrusted watch are likely to remain largely unaffected by an economic downturn. Life is good, buy a watch - this seems to be the mantra of the rich. Spending $3 million in advertising, as Rom does, also helps push those in the mood to spend on his brands.
"I put it down to the lifestyle in Australia. People are enjoying themselves," Rom says. No more so than in Queensland where sales of Raymond Weil watches are up by 50 per cent. The mineral boom in Western Australia and in Queensland has not been matched by the other states. Not that he is complaining. He says he has waiting lists for up to three months for watches such as the Nabucco and Shine, which sell for $5700 and $8000 to $9000 respectively.
Over at champagne house, times could not be better for Moet Hennessy, says Australian chief executive Robert Remnant. Like the rest of the world, Australia is drinking champagne - the real stuff - faster than the 34,000-hectare region in northern France can make it.
Again, the owner of such venerable brands as Moet & Chandon, Krug and Dom Perignon find themselves in an enviable position. Remnant says volumes have doubled since 2003, when the company - part of the listed global luxury empire LVMH - wrested back marketing and distribution from local agents who were discounting the brand to gain market share.
Since then prices have climbed to a point where the company is making more out of its champagne than ever before. Six out of every 10 bottles are a Moet Hennessy brand, but its value share of the $100 million champagne market is closer to 75 per cent, a reflection of the fact, says Remnant, that Australians don't mind paying the extra dollar, or $50, for a good drop.
"Because of the wine market here they understand the difference between non-vintage and vintage," he says. But Remnant is uncertain whether the current global economic conditions will allow for such unchecked consumption. "It is not going to make much difference to someone who is buying Krug or Dom Perignon."
Remnant's "significant" marketing budget has ensured his brands are seen in all the right places, from the Melbourne Cup to high-profile business awards.
All around there are signs that the luxury industry is working hard to feed the appetite of shoppers. Jimmy Choo has just opened in Sydney and Coach, the American leather goods brand, plans to open a larger store than its current boutique in Sydney's Queen Victoria Building.
More luxury brands are expected to appear in the redeveloped Westfield mall in the heart of Sydney's CDB when it opens some time next year. And the activity is not restricted to Australia's two biggest cities. Bulgari has opened a boutique in Brisbane and Cartier is opening in Cairns - yet more signs that the global luxury companies recognise that as much as Australians like to travel and shop abroad, they also like to be able to purchase luxury goods close to home.
Philip Corne, chief executive of Louis Vuitton in Australia, is showing scant signs of reining in his investment. He is renovating stores around the country and is opening up in Westfield in Bondi Junction. Even so, he expresses a trace of caution.
"At the moment that desire for high-quality products with really personalised service is holding, but we take nothing for granted. We spend a lot of time looking after our customers," he says.
"We would be foolish if [we thought] there was not the potential for a change in consumer sentiment, and we are mindful of that."
First published by Smh.com.au on April 18 2008
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