Luxury sales on rise despite gloomy economy

Why expensive items sell briskly amid lingering economic downturn

By Kwon Mee-yoo

Luxury goods prosper in Korea despite the sluggish economic condition and beating basic economic laws of supply and demand.

A female shopper, only identified by her surname Kim, who wanted to buy a Lavender-colored patent leather Chanel Classic Jumbo bag, had to make a few calls and visits before getting her hand on the desired bag.

"I first visited a luxury brand-specialized branch of a department store. They said they have a long list of customers waiting for the bag and I have to wait about a month," she said.

So Kim called other branches of Chanel to find out where she can buy it. New products come in often, but they are soon sold to customers whose name is on the waiting list.

"Some said it was not stocked and another one said they have only one, but it was reserved. I entered my name into several waiting lists and finally got a call about a week later," Kim said.

Kim said having a luxury bag makes her shoulders raised in pride. "I feel people seeing me in a different way when I carry a bag from luxury brand. I know it is expensive, but a woman needs something like this," she said.

The situation is similar at other brands. Louis Vuitton Monogram series were one of the most popular luxury handbags in Korea for years, but Epi Alma Rainbow is the hottest item this spring, thanks to actress Kim Nam-joo who held the bag in the new KBS drama "My Husband Got a Family."

“There are customers who like to have the same bag as celebrities and items like this are sold out soon,” a Louis Vuitton clerk said.

The luxury companies raise the price once or twice a year and customers have to put their name on waiting lists to buy popular products. This is against the law of supply and demand, but the luxury market thrives in Korea.

According to the Financial Supervisory Service, Louis Vuitton Korea turned over 497 billion won last year, a 16.4 percent growth from 2010. It is likely to exceed 500 billion won this year, the first time for a luxury brand in Korea. Operating profit and net profit also saw increase to 57 billion won and 45 billion won.

Gucci Korea was the second by recording sales of 296 billion won, an 8.4 percent jump from the previous year.

Louis Vuitton and Gucci were the most commonly known luxury brands in Korea, but the customer base of luxury market is expanding to other brands as well. Ferragamo Korea marked 97 billion won and Sisley Korea 85 billion won. There are only four luxury companies with sales over 100 billion won in Korea ― Louis Vuitton, Gucci, Burberry and Prada ― and Ferragamo is likely to join them soon.

Top luxury brands Chanel and Hermes do not disclose their sales since they are incorporated companies.

"Market for luxury goods is affected by low consumer confidence, but there is always new demand in luxury market, mainly the middle class," a department store spokesman said. "The middle class enter the luxury market through popular bags and the upper middle class buy more high-end bags. Super rich prefer relatively unknown brands in clothing and jewelry."

Even price hike notice spurs up sales boost in the luxury industry.

For instance, Chanel announced a 25 percent markup in May 2011 and sales in April 2011 jumped 40 percent. When the luxury brand notified another price hike on Feb. 1, its January sales at a department store jumped 90 percent compared to the same period the previous year.

"From a common-sense point of view, it is incomprehensible that customers think buying a luxury item before the price increase is saving. If the product is too expensive, they should not buy it, but such rationality does not apply for luxuries," an industry source said.

According to a 2011 report on Korean luxury market by McKinsey & Company's Seoul office, the size of luxury market in Korea is on a constant increase for years, reaching $4.5 billion in 2010.

More than 45 percent of customers said it is not such a special event to buy luxury goods, compared to the 21 percent in 2010. The report also said spending on luxury goods account for 5 percent of household income, which is higher than 4 percent of neighboring Japan.

It also pointed that Korean customers are becoming more fastidious about luxury items as it became more common.

"Korean customers seek more refined and unique items to project their own personality. That is why more companies are developing limited editions and made to order services," the report said.

The McKinsey foresaw such rapid growth of the luxury market in Korea would last three to five years.