Luxury market in the CEE countries slowly reactivates

2010-06-22

The luxury goods market in Poland, Romania and Hungary is expected to develop in the near future. These locations are considered to be emerging markets in which the demand for luxury items will continue to grow even in 2010.

Spending on luxury products on increase in Poland
In 2010 the number of Poles who earn more than PLN 7,100 (€1,740) gross per month will be around 590,000, and their average monthly income will approach PLN 15,000 (€3,680) gross, according to a KPMG report. Of this group, around 50,000 people are considered to be affluent: i.e. they own liquid assets of at least $1m and earn more than PLN 20,000 (€5,000) gross per month. The respondents surveyed by KPMG stated that, on average, they spent 13% of their monthly income on luxury goods. However, the proportion is increasing in step with increases in income. respondents earning PLN 3,700-7,100 (€908-1,740) gross (described as “aspiring” by KPMG) spent, on average, 9% of their monthly incomes, those on salaries of PLN 7,100-20,000 gross spent 15%, whereas for the most affluent, who earn more than PLN 20,000 gross per month, the figure was 18%.
It is predicted that spending on luxury items in Poland in 2010 will come to PLN 27bn (€6.6bn), with PLN 16bn (€4bn) spent by those earning over PLN 7,100 gross per month. Until 2013, spending on luxury goods is anticipated to grow by 50%.

Quality is for Poles the most crucial feature of upmarket goods
As many as 84% of Polish respondents claimed that they buy luxury products. Half of those surveyed said that they do so at least once per quarter (and half of them at least once a month).
With regard to the characteristics of a luxury brand, the respondents most often indicated high quality (89%). Prestige was mentioned by 61% of those surveyed and a high price by 53%. Those with lower incomes chose high quality and price more often, whereas the more affluent were conscious of non-material features, including brand awareness, tradition and the values represented by the product.
Half of the respondents said that they had been forced to cut back on their spending on luxury items as a result of the global financial crisis. The most substantial proportion of such answers was reported for those earning PLN 3,700-7,100 gross per month. The higher the monthly income, the less prone the consumers were to cutting their luxury expenses.
Those who reduced their budgets for upmarket products said that they had reduced their spending in this area by one-third on average.
Respondents in all income groups stated that, in two or three years’ time, their spending on health and beauty treatments, hotels and travel will comprise a greater proportion of their upmarket goods spending than at present.

Luxury goods in Romania to be the first segment to state increases
In 2009 the sales of luxury goods in Romania decreased by 25% year on year. As a result, brands such as Korloff, Franck Mueller, Davidoff and Bally were forced to withdraw from the Romanian market.
The first quarter of 2010 brought another 25% year-on-year decrease in retail sales of upmarket goods in the country. The luxury goods market in Romania (not including the hotel industry and perfumeries) is now estimated to be worth €300m.
Despite the decreases, luxury clothes, accessories, jewellery and watches are expected to register an increase in sales this year, which would bring Romania up to the level of the Czech Republic and Serbia when it comes to spending on luxury goods, according to a study by CPP Management Consultants.



Hungarians start buying luxury goods only at the end of 2010
Within the CEE region Hungary's luxury market has been one of the most affected by the financial crisis. According to CPP Management Consultants estimates, the luxury market in Hungary dropped by over 30% in 2009 compared to 2008. What is more, the negative trend is expected to maintain for the rest of 2010. A recovery is envisaged which will see a growth trend start just around the 2010 Christmas season.
Hungary's luxury market is heavily dependant on tourism. Almost 80% of luxury sales come from sales to foreign travelers. Budapest is directly competing with Prague for clients in all its luxury industry segments. The competition currently favours Prague, which in comparison with Budapest, has at least twice the traffic of Asian and Middle East travelers.

Paulina Burzawa
Business Editor
PMR Publications