Analyst Insight by Lee Peart
When it comes to spending on fine fabric detergents, the Germans and Italians lead the way in Western Europe and globally. The popularity of designer labels, along with high disposable incomes, has created a “virtuous circle” of demand in both countries for fine fabric detergent manufacturers such as Henkel, Unilever, Reckitt Benckiser and Colgate-Palmolive.
A laundry staple for Germans and Italians
While fine fabric detergent sales have been hit by the financial crisis in Germany and Italy, falling by 5% and 2.5% between 2007 and 2011, respectively, spending in the category remains well above the Western Europe average, according to Euromonitor International data. Fine fabric detergents accounted for 9% (Germany) and 11% (Italy) of total laundry value spend in 2011 compared with a Western European average of just 6%. So why do Germans and Italians spend so much on fine fabric detergents?
Designer label culture fosters demand
The unusually high spend on fine fabric detergents is primarily down to the popularity of designer labels and high-quality clothing in Germany and Italy. Italy and Germany, albeit to a lesser extent, both have a strong designer label culture. Italy is the birthplace of designer brands such as Gucci and Versace, while Germany is home to Lagerfeld and Hugo Boss.
The economic recovery in Germany has fostered a whole new group of consumers who want to move on from 'throw-away' clothing and invest in better quality items. Italy and Germany are the two biggest spenders on designer clothing in Western Europe, splashing out US$6.6 billion and US$4.1 billion, respectively, in 2011. Value sales of designer clothes surged by 16% in Italy between 2007 and 2011 amidst the financial crisis, while they were up by a more modest 3% in Germany.
The Italian love affair with designer labels is encouraged from a young age. Italians spend more on designer labels for their children than anyone else in Western Europe. Value sales of designer label children's clothing soared by 20% between 2007 and 2011, with parents more willing to give up indulging themselves than their children during hard times.
Greater designer luxury goods affordability and availability have further boosted fine fabric sales and, therefore, fine fabric detergent spending. In Italy, department stores such as Coin and La Rinascente have attempted to distinguish themselves from standard retailers and boutiques by offering high-end products, while there are also an ever increasing number of premium shopping outlets where price-savvy customers can pick up luxury goods at discount prices. Internet retailers have also sprung up, such as SaldiPrivati-Born4Shop, Privalia, vente-privee.com and Zalando.de, offering luxury goods at discount prices.
Rising incomes boost designer label indulgence
Increasing disposable incomes have helped fuel demand for fine fabrics and fine fabric detergents in Germany and Italy. Despite the financial crisis, annual disposable incomes continued to rise in the two countries between 2007 and 2011, by 8% and 3%, respectively. With their strong saving culture and powerhouse economy, Germans enjoy the highest annual disposable income in Western Europe. While being generally price-conscious when spending on items such as groceries, with a love of discounters Aldi and Lidl, fashionable young Germans in particular have become accustomed to splashing out on designer labels and high-quality clothing which require the use of fine fabric detergents.
An ageing population with a higher disposable income has, furthermore, contributed to the favourable demographics for fine fabric detergent manufacturers in Germany and Italy. Working women who stay single for longer have been a key growth driver of consumption in Italy in particular, where spending on women's designer outerwear grew by a CAGR of 4% between 2006 and 2011.
Demand for fine fabric detergents has been further boosted by the fashion for silk and growing environmental awareness, which has led to higher sales of natural fibres in the form of woolen knitwear. Men are, for their part, also staying single for longer and have a higher available income to indulge in luxury clothing.
Vorsprung durch Technik
The German love of technology represents a further opportunity for fine fabric detergent manufacturers. Home-grown washing manufacturers such as Miele are increasingly offering high- tech “fabric gentle” washing machines suitable for fine fabrics, including wool, silk and delicates. The honeycomb drum design of Miele washing machines provides a more gentle wash for fine fabrics by creating a film of water. Miele has developed advanced programmes catering specifically for woolens and silks. The high-tech specialist even has a fine fabric detergent brand of its own for woolens, silks and delicates.
As with many things, Germans tend to adopt a more methodical and particular approach to laundry than other nationalities, with consumers generally more prepared to buy detergent types for different colours and types of fabric.
Manufacturers should look East for future growth
In the event that Western Europe achieves a successful resolution to the current euro crisis, fine fabric detergent manufacturers should continue to enjoy growth in the key markets of Germany and Italy. Fine fabric detergent sales growth is expected to pick up in Italy between 2011 and 2014 with a CAGR of 1.7%, providing a positive outlook for leading players Reckitt Benckiser, Henkel, Colgate-Palmolive and Italsilva.
On the downside, Italy, with its high debt levels, is one of the nations most exposed to a collapse of the Eurozone, and fine fabric detergent sales would inevitably suffer in this worst case scenario as consumers rein in their spending. Luxury goods demand tends to remain resilient during a recession, however, as wealthy consumers remain insulated from its adverse effects, which should mean that the negative impact on fine fabric detergent sales should be minimised.
In either event, fine fabric manufacturers such as Reckitt Benckiser and Henkel could do worse than look to Asia where economies such as China and India are expected to continue to boom and fuel consumer demand for luxury goods. Italy is the leading destination for Chinese luxury goods shoppers in Western Europe. Fine fabric detergent manufacturers would, therefore, be well advised to take the long-term view and establish a presence in China and India, where they are currently notable by their absence, in order to capitalise on potentially huge long-term growth potential.
Direct sales over the internet to Chinese and Indian consumers could be the most economical way for fine fabric detergent manufacturers to tap into rising Asian consumer demand. Fine fabric detergent sales are expected to grow by a healthy CAGR of 8% and 6% in China and India, respectively, between 2011 and 2015. China's fine fabric detergent value sales are expected to overtake those of Germany from a low per capita consumption base by 2014, achieving incremental growth of US$50 million between 2011 and 2014.
With its strong economy and favourable demographics, Germany, for its part, should be relatively insulated from any euro crisis. Germany's ageing population, with its higher disposable income, should continue to provide healthy growth for leading fine fabric detergent manufacturers such as Henkel, Unilever and Burnus. German fine fabric detergent sales are predicted to grow by a CAGR of 2.3% between 2011 and 2014.
Fine fabric detergent manufacturers could boost their prospects in the relatively saturated Western European market through closer co-operation with cutting-edge washing machine manufacturers such as Miele. The prospects for Miele look particularly strong in Germany where consumers have a healthy appetite for high-tech washing machines offering specialist programmes for fine fabrics. A tie-up with the likes of Miele could boost a fine fabric manufacturer's sales through brand promotion and would provide a valuable leg up on their rivals in an increasingly competitive environment.