The UK luxury goods market has been forecast to increase by 57% over the next five years, to hit a market value of £9.4 billion by 2015.
The luxury goods market as a whole has been spared from the deep effects of the 2012 double dip recession, due to the industry's reliance on big spending international tourists and as a result has continued to see value sales growth in 2012. The bulk of spending in the UK luxury market does not derive from British consumers.
The slightly weakened British pound and reduced taxation rates have also encouraged tourists, particularly from MERC (Middle East, Russia China) countries to spend even more in the UK.
It was evident in 2012 that rich history alone is not sufficient to stay afloat in the UK environment. 2012 saw British Heritage brands on opposite sides of the coin, either struggling or succeeding in remaining relevant to contemporary consumers.
In 2012, the Olympics gave the UK luxury market a lift, as visitors flocked to London's West End, home to a host of luxury flagship stores. The wave of tourists, Games sponsors and VIPs has mainly benefitted gifting items such as accessories, jewellery and timepieces.
The luxury goods market is considered to be highly consolidated in the UK where big brands such as LVMH, Ralph Lauren and Dior and Heritage brands such as Burberry reign supreme.
However, last month, shares in handbag maker Mulberry tumbled 15% whilst stocks in Burberry fell 4%. The drop came as Mulberry issued a second profit warning in six months, after a disappointing post-Christmas performance.
It was because of this announcement that Burberry's shares also fell amidst market concern that the luxury goods sector is now feeling the strain of the global economic downturn.
Luxury brands are expected to follow one of two strategies: push prices, quality and exclusivity up to aim for super-rich consumers or launch more affordable brands and opt for a wider audience. Both strategies carry a high amount of risk.
The UK luxury goods market is expected to see slight growth in constant value terms over the next five years but this will be limited as the outcome of the double dip recession could transform perceptions of luxury.
The luxury industry will not be completely immune to the Eurozone crisis and austerity measures are likely to poison the old mentality of luxury goods and luxury consumption. As a result, there may be a shift into investments rather than indulgence - for example, investing in luxury jewellery and timepieces, which can be passed down for generations.
For more information on the UK luxury goods market, see the latest research: UK Luxury Goods Market
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