Handbags displayed in a Chanel SA shop window at Avenuel department store owned by Lotte Shopping Co Ltd on Tuesday December 14, 2021. operates in Seoul, South Korea.
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From Italian calfskin Prada bags to classic checked British Burberry trench coats, South Koreans spend the most money on personal luxuries per capita in the world, Morgan Stanley said.
The investment bank estimates that South Korea’s total spending on personal luxuries rose 24% in 2022 to $16.8 billion, or about $325 per capita. That’s far more than the $55 and $280 per capita that Chinese and American nationals spend, Morgan Stanley estimates.
Luxury brands have also highlighted strong sales in Korea.
Moncler said its revenue in South Korea “more than doubled” in the second quarter compared to before the pandemic. Cartier-owner Richemont Group said Korea was among regions where sales grew double-digit in 2022 compared to a year and two years ago.
While Prada said lockdowns in China contributed to a 7% decline in retail performance in 2022, the fashion house said the decline was “mitigated by strong performance in Korea and Southeast Asia.”
Signs of financial success
Morgan Stanley analysts explained that demand for luxury goods among South Korean buyers is being driven by both an increase in purchasing power and a desire to show social standing to the outside world.
“Appearance and financial success may resonate more with consumers in South Korea than in most other countries,” analysts write in the report.
People attending a Gucci pop-up store event in the Gangnam district of Seoul on September 4, 2015
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Flaunting wealth is also more socially acceptable in Korean society. A McKinsey poll found that only 22% of Korean respondents consider displaying luxury goods to be distasteful, compared to 45% of Japanese and 38% of Chinese.
Demand for luxury goods was also supported by increases in household wealth. Data from the Bank of Korea shows that the country’s household net wealth increased by 11% in 2021. About 76% of household wealth in Korea is real estate, which prices have increased significantly since 2020.
The investment bank also noted that luxury houses have been tapping into Korean icons to further fuel demand.
“Almost all major Korean celebrities are brand ambassadors for leading luxury houses,” the report says, such as Fendi and actor Lee Min-Ho, or Chanel and rapper G-Dragon.
Dior made Blackpink singer Rose the face of its HardWear collection, which the fashion house said was “very well received” and doubled the line’s sales.
However, Bain & Company cautioned against using per capita metrics for consumption of luxury goods.
“Luxury, by definition, is not a mass-market product,” Bain & Co partner Weiwei Xing told CNBC.
“I would suggest dividing total luxury spending by population starting from the middle class, which would be a more meaningful measure to reflect luxury attitudes and consumption,” Xing said, adding that it would narrow the gap.
A customer carries a Chanel SA shopping bag on Tuesday, December 14, 2021 in Seoul, South Korea.
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Untapped potential in China
Still, Morgan Stanley said Korea’s thriving luxury market is a “good preview” of what could become of China’s luxury market, which it says is “underdeveloped.” The analysts said the two countries have similarities in attitudes toward luxury items as status markers.
Currently, South Korea’s annual per capita spending on luxury goods is more than six times that of China’s spending.
McKinsey forecasts that the global luxury market will grow between 5% and 10% in 2023, driven by demand from the US and China.
“We expect growth to resume after China recovers from the current Covid waves, which should happen by the first quarter,” Xing said.