According to a recent Nielsons' survey, two in five Chinese consumers would choose Chanel and 38 per cent of Russians would choose Christian Dior. One in three Russian consumers also said they would spend their money at Versace and Prada.
Two in five Hong Kongers and Filipinos would choose Louis Vuitton while Giorgio Armani, Calvin Klein and Yves St Laurent are top picks for Latin American consumers.
The Big Story:
Globalisation, internet technologies and the rise in disposable incomes worldwide have fuelled a number of key developments. The first is in emerging markets where consumers are snapping up global brands. According to Nielsons, the Indian luxury goods market is expected to grow from $1bn to $30bn by 2015. According to one recent survey, over a third of Indian customers had at some point bought Calvin Klein products, although Gucci was the most coveted foreign brand, if money was not a constraint! Besides Calvin Klein, Indians consumers have also bought other luxury brands such as Gucci, Diesel, Christian Dior and DKNY.
This global broadening has been accompanied by a parallel trend, namely that new brands have emerged out of nowhere to challenge this global brand hegemony - some have come from local territories, both in the developed world (Zara from Spain) and the developing world (Tiger beer in India). Some new brands have also jumped out of the internet and are now posing a threat to traditional bricks and mortar businesses (Amazon in the US and ASOS in the UK are good examples).
But there's also a diverging trend - along with all this broadening, there's a greater number of very segmented brands emerging which dominate smaller niches with better targeted and branded products. In the fast food sector, McDonald was until recently struggling against newer brands (such as Yum Brands) while in the UK, brands such as Domino’s Pizza have gone from strength to strength. In the hotel sector, the older brand names have started to lose their lustre while newer or brasher entrants have moved in and started to attack key business markets - look at the huge success of chains such as Travelodge (owned by investors in Dubai) and the French-listed Accor portfolio of hotels.
Over in the fashion world, the long march to online dominance of ASOS has been accompanied by smaller successes offline - Ted Baker, for instance, hasn't bothered with the brasher tactics of outfits like FCUK, but instead focused on long-term organic growth. It's also important to note that western-owned brands won't have the show to themselves in the key global growth markets. The big countervailing trend to watch out for here will be the continued success of local brands in key markets such as India and China - Chinese brands such as Tencent Holdings, QQ instant messaging service, Belle shoes, Alibaba's Taobao consumer-to-consumer e-commerce service and White Cat detergent, and White Rabbit Candy succeed because they understand Chinese customers.
The Benchmark Index?
The Fairchild News Service Index of retail, apparel, textile and cosmetics stocks is a good start. Dow Jones has also in the last few months launched a Luxury Index, which tracks the performance of 30 companies "selected by editors of The Wall Street Journal to reflect a diversified cross-section of the luxury segment across countries, sectors and market capitalisation". According to Dow Jones, "In back testing to January 2 this year, the Luxury Index was up 6.71 per cent on June 20". Its top three components are Compagnie Financière Richemont, LVMH Moet Hennessy Louis Vuitton and Porsche Automobil Holding.
How to access the theme?
There's nothing particularly mainstream, although hedge fund Dominion recently launched CHIC and was originally meant to invest in fashion brands such as Louis Vuitton, Marc Jacobs, Givenchy, Fendi and Stella McCartney. It's up just over 4 per cent in the last four months, but it's down over 20 per cent since the launch. Current top holdings include Diageo, Blackberry phone manufacturer Research in Motion, L'Oreal, and LVMH. BNP Paribas has launched two new ETFs tracking the Dow Jones Luxury index, but they're only available in France.
Left field ideas
The world's most successful recent brand launch must be Google (like Xerox and FedEx, it's now a verb) followed by Amazon. If ASOS carries on making headway, it could be a huge global success. On a much smaller, niche level, look out for the slow but steady growth of high street formats such as Printing.com, which is trying to brand itself as the affordable high street print and design brand. One global outfit worth watching out for is HSBC, which is rebranding itself (and its branches) at a furious pace and is clearly trying to build up a strong global brand as the world's local bank for wealthier customers
Caveats?
Fashions change. Take British fashion champ Burberry, which keeps climbing up top global brand surveys. It wasn't always so rosy - a few years back the Burberry brand in the UK looked in big trouble - it had became 'confused', according to the brand experts, after being adopted by football hooligans and minor celebrities. According to one survey, "it quickly acquired associations of thuggishness and became a conspicuous emblem of new wealth, which repelled many of its traditionally loyal customers". A row over the closure of a factory in Wales threatened to cause irreparable damage, but the management have stabilised the business and globally the brand is going from strength.
MORE BIG INVESTMENT THEMES...
This is the third of a series of ten articles about investment themes.
