Luxury in demand
16:03
A red Porsche and a 200-sqm apartment on the 50th floor of a residential tower, the classic symbols of luxury living, are getting popular in Poland. So are designer clothes and premium spirits. Still, Polish top-earners do not always shop at home and increasingly see some luxury goods as a form of investment
by Beata Socha
The number of high-earning Poles is increasing. In 2013, there were 786,000 individuals with incomes exceeding PLN 85,000 a year. Their number should be close to 1 million in 2016, according to projections made by the Ministry of Finance. Whether we can call people earning PLN 85,000 a year (PLN 7,000 a month) “rich” is debatable. However, there is no denying the fact that the demand for luxury goods is growing in Poland. Last year, the value of the luxury market stood at PLN 10.8 billion (a 5.9 percent bump compared to 2012), whereas in 2016, the market should be worth nearly PLN 13 billion, according to consultancy KPMG.
“Despite the fact that purchasing power in Poland is lower than in Western European countries, it has continued to increase over the years as the Polish economy is developing. Hence, Polish consumers will have increasingly higher disposable income, and will therefore be able to pay for luxury goods and services,” said Michael Phan, associate professor at EMLYON business school (France) specializing in luxury management & marketing and the editor-in-chief of the Luxury Research Journal.
The real question that luxury goods producers are asking themselves is not whether Poles are buying luxury goods, but where they are buying them. Even though 69 percent of global luxury brands are available in Poland, mostly Italian and French brands, it doesn’t necessarily mean that Poles will buy them at home. “Luxury goods are always cheapest in the home market of that brand,” said Phan. One of the biggest issues luxury brand retailers face is how to persuade wealthy Polish consumers to buy at home, and not go to Paris or London to shop for better prices.
The Fifth Avenue experience
The fashion segment seems to be the most susceptible to “shopping tourism.” Wealthy Poles prefer to buy luxury garments in Paris or Milan instead of in Warsaw or Kraków, not only because of the lower prices, but mostly because of the wider selection of high-end stores. They also crave the experience of high street shopping. Polish high streets are still a far cry from their European counterparts, which is why luxury brands are still wary of opening their stores in Poland.
“In emerging markets, stand-alone stores might not be the best option for luxury brands if there are no suitable shopping streets that can reflect the positioning of the brands, such as Avenue Montaigne or Faubourg Saint-Honoré in Paris,” Phan explains. “The option for luxury brands would be to open stores in luxury shopping malls that have the right market positioning (high-end buildings, well-maintained inside and outside, a good location in the city, traffic of the right type of consumers, easy access, car parking facilities, etc.).”
The fact that Poles shop for luxury goods abroad may blur the picture in most product categories. The data for the car segment is much more reliable, though, since vehicle registration is necesarry. Data from automotive research firm Samar show that in the first six months of 2014, the number of Porsches registered in Poland increased by 78.17 percent (408 cars were registered in H1 2014 compared to 229 cars in the corresponding period of 2013). The number of Maseratis, Bentleys and Ferraris driven on Polish roads also grew in year-on-year terms, but the figures are still too small to offer statistical value (20 Maseratis, 12 Bentleys and 9 Ferraris were registered in January-June 2014).
[big percent= "786,000"]the number of individuals with incomes exceeding PLN 85,000 a year in 2013[/big]
Luxury living
The size of the luxury housing segment is not as easy to estimate, as most of the luxury residences are built by the investors themselves rather than by a developer. Their market value thus remains unknown, unless they are sold later. According to KPMG data, the value of all luxury residences and apartments sold, both on the primary and secondary market, stood at €900 million in 2013. Including the individually-built residences, the figure would far exceed €1 billion, the firm estimated.
In Warsaw alone, ten prime residential projects were completed in the past four years, altogether offering over 900 units with prices around PLN 20,000 per sqm, according to data from real estate consultancy Knight Frank.
“The market for luxury goods in Poland is doing well, as evidenced by the fact that we managed to find buyers for luxury apartments in our Rezydencja Foksal development three years ago, when economic conditions were far worse than today,” said Rafał Szczepański, vice president of BBI Development. The developer has recently purchased, together with US real estate fund Amstar, the unfinished luxury residential tower Złota 44. The iconic tower was bought from Orco Group for €63 million. The sale of Złota 44 apartments has thus far proven quite difficult, mostly due to the previous owner’s steep pricing policy and delays in project development. However, the new owner expects to sell all the remaining units (80 percent of the 266 apartments have yet to be sold) within the next few years.
[negative]"The value of all luxury residences and apartments sold, both on the primary and secondary market stood at €900 million in 2013.[/negative]
Not only consumption
One of the luxury goods segments with the strongest growth figures is alcohol. Poles are buying more prime quality wine, cognac and whisky than ever before.
“There is increasing interest in the premium segment. The import of single malt increased by 100 percent in value and 50 percent in volume over the past year. This means that the price of imported bottles grew – we import more and more of the expensive brands,” said Jarosław Buss, a whisky expert and co-organizer of the Warsaw Whisky Fest.
Poles are interested in wines and whisky not only for their taste value. “Exclusive brands of whisky are often bought to be consumed, but also increasingly as a form of investment. Clients who invest in whisky usually buy two bottles of the same type: one for the palate, the other for the collection,” Buss added.
Emerging markets open to luxury Interview by Beata Socha Is Poland an attractive market for luxury brands? After all, the purchasing power is significantly lower in Poland than in the leading Western European countries. Michael Phan: The answer is definitely yes! Despite the fact that the purchasing power in Poland is lower than in Western European countries, it has continued to increase over the years, as the Polish economy is developing. Hence, Polish consumers will have increasingly higher disposable incomes and will therefore be able to pay for luxury goods and services. However, a key question remains: how are luxury brands going to persuade wealthy Polish consumers to buy at home, and not go to Paris or London to shop for better prices? (luxury goods are always cheapest in the home market of that brand). Which luxury goods market segment is developing most rapidly in emerging countries? There is no strict rule about which product categories develop best in emerging markets. Each country is different and consumers in those markets are very different in their adoption of luxury goods. In Poland, the first luxury product categories are fashion (ready-to-wear), followed by shoes, and spirits such as whisky and cognac. However, other product categories such as cosmetics, cars and luxury properties are also on the increase in Poland. Where do luxury brands venturing to Poland (and other emerging markets) originate from? Are they mostly European, American or both? The luxury industry today is dominated by European and American brands. So, naturally, as the luxury market is developing in Poland, those same brands are the frontrunners to enter Poland. Brands from the major groups such as LVMH, Richemont, Kering, Hermes, L’Oreal, Estee lauder, Ralph Lauren, Tiffany&Co. are definitely the major players. What is the market strategy of a luxury brand entering a country like Poland? How do they prefer to operate, in multi-brand upmarket stores or do they open their own brand stores? There are a few “luxury streets” in Poland such as: ul. Długa in Gdańsk, and ul. Świdnicka in Wrocław. In Warsaw, you have ul. Chmielna, ul. Nowy Świat and ul. Bracka streets as well as Pl. Trzech Krzyży. In Kraków, there are ul. Floriańska and ul. Grodzka. These are suitable locations for luxury brands to open their stores in Poland. Alternatively, if there are no “luxury streets” in a city, brands will likely look for high-end/luxury shopping malls (which could be newly built) such as Vitkac in Warsaw to open their stores.
Emerging markets open to luxury Interview by Beata Socha Is Poland an attractive market for luxury brands? After all, the purchasing power is significantly lower in Poland than in the leading Western European countries. Michael Phan: The answer is definitely yes! Despite the fact that the purchasing power in Poland is lower than in Western European countries, it has continued to increase over the years, as the Polish economy is developing. Hence, Polish consumers will have increasingly higher disposable incomes and will therefore be able to pay for luxury goods and services. However, a key question remains: how are luxury brands going to persuade wealthy Polish consumers to buy at home, and not go to Paris or London to shop for better prices? (luxury goods are always cheapest in the home market of that brand). Which luxury goods market segment is developing most rapidly in emerging countries? There is no strict rule about which product categories develop best in emerging markets. Each country is different and consumers in those markets are very different in their adoption of luxury goods. In Poland, the first luxury product categories are fashion (ready-to-wear), followed by shoes, and spirits such as whisky and cognac. However, other product categories such as cosmetics, cars and luxury properties are also on the increase in Poland. Where do luxury brands venturing to Poland (and other emerging markets) originate from? Are they mostly European, American or both? The luxury industry today is dominated by European and American brands. So, naturally, as the luxury market is developing in Poland, those same brands are the frontrunners to enter Poland. Brands from the major groups such as LVMH, Richemont, Kering, Hermes, L’Oreal, Estee lauder, Ralph Lauren, Tiffany&Co. are definitely the major players. What is the market strategy of a luxury brand entering a country like Poland? How do they prefer to operate, in multi-brand upmarket stores or do they open their own brand stores? There are a few “luxury streets” in Poland such as: ul. Długa in Gdańsk, and ul. Świdnicka in Wrocław. In Warsaw, you have ul. Chmielna, ul. Nowy Świat and ul. Bracka streets as well as Pl. Trzech Krzyży. In Kraków, there are ul. Floriańska and ul. Grodzka. These are suitable locations for luxury brands to open their stores in Poland. Alternatively, if there are no “luxury streets” in a city, brands will likely look for high-end/luxury shopping malls (which could be newly built) such as Vitkac in Warsaw to open their stores.
