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The UK is about to be leapfrogged by Russia as the highest value market in the world for super premium fragrances, according to new data from Euromonitor International. It is indicative of a critical shift in global luxury consumption culture, as High Net Worth Individuals from the BRICs set a new and dynamic pace of growth that has major strategic implications for the world’s leading luxury players.

The regal hug that launched a luxury scent

Two years ago, London’s iconic luxury retailer Harrods struck a deal with New York’s trendsetting Bond No. 9 to make a super premium house fragrance. As the story goes, the inspiration for the partnership came about after a protocol-breaking hug between Queen Elizabeth II and First Lady Michelle Obama during a presidential visit to London in May 2009. The fragrances, Harrods for Him and Harrods for Her, positioned at around US$230 for 100ml, were promoted as a celebration of kinship between the US and the UK, and in particular their two most famous cities, London and New York City.

In that launch year, the UK was the biggest super premium fragrances market in the world, with retail sales summing US$340 million, according to data from Euromonitor International. However, the latest (fifth) edition of the Harrods and Bond No. 9 collaboration, introduced last month under the branding Harrods Amber and priced at around US$400 for 100ml, comes at a time when the UK is about to lose its top ranking position in super premium fragrances to Russia. This dethronement of the UK aligns with trends across luxury goods consumption, as the scales of global demand tilt inexorably towards emerging markets and, in particular, towards China, Russia and Brazil.

Harrods footfall boosted by Chinese bank terminals

Executives at Harrods are unlikely to lose too much sleep over the UK’s loss of leadership in luxury fragrances. The store’s customer base is made up mostly of international visitors, and they will be the biggest buyers of Harrods Amber in 2011, not UK residents. Within that international customer base, the biggest participation is likely to come from China. Remarkably, without actually opening a store in China, the burgeoning wealth of Chinese shoppers has become key to the strategic development of the London Knightsbridge store.

For example, Harrods now employs 75 Mandarin-speaking staff to help serve its huge volume of Chinese visitors, with approximately half of the store’s footfall made up of Chinese shoppers on the first day of the January sales this year. And earlier this year, 75 China UnionPay (CUP) bank terminals were installed. This CUP investment has yielded an immediate retail upside, with Chinese shoppers spending on average almost US$6,000 per Harrods visit in the first quarter of 2011, up 40% on the same period in 2010, based on VAT returns and according to company sources.

Chinese cards are not compatible with chip-and-pin terminals in the UK, so the CUP terminals are crucial to bulking out purchases, especially for ultra-high end products. One Chinese customer this year used CUP to splash out US$225,000 on a diamond. And, it is increasingly common for a Chinese shopper to buy four or five units of a product, such as a bottle of perfume or a luxury accessory. Such multiple purchases (normally for gifts at home) were much less visible before the terminals were put in place. Selfridges & Co in London has also installed CUP terminals, and much stronger CUP penetration across Western Europe is expected over the next five years as more upscale retailers tap into the lucrative luxury spending capacity of Chinese tourists.

Super premium fragrances on the cusp of a new era of growth

Beyond Russia and Saudi Arabia, luxury fragrances was still a nascent category in emerging markets last year. However, that is likely to change going forward as wealthy consumers from China, Brazil and India develop a keener interest in the world’s most expensive perfumes, just as they have for the world’s finest wines. Indeed, to 2015, Russia, Brazil, China, India and Saudi Arabia will comprise five of the 10 biggest projected growth markets for super premium fragrances, according to Euromonitor International.

That the BRICs, and China in particular, are driving the global luxury goods agenda is now indisputable. Harvey Nichols, the leading luxury rival to Harrods in the UK, will open its second Hong Kong outlet later this year in a move that is directly linked to China’s growing appetite for luxury goods. Hong Kong is to wealthy shoppers in China what Miami is to wealthy shoppers in Latin America, specifically a beacon, if not a shopping mall, for luxury shopping opportunity. And one has to think it is only a matter of time before Harrods itself embarks on its own Chinese venture.

The most expensive smell in the world

But, what type of super premium fragrances are the Chinese and other High Net Worth Individuals from the emerging markets after? The fragrances industry appears to be falling over itself to get a steer on what BRIC luxury trendsetters are likely to go for in a perfume. Yet, does scent per se play a decisive factor? The world’s most expensive perfume is the limited edition Clive Christian No. 1, which costs around US$200,000 for a 30 ml bottle. It is not, of course, just any old bottle. It is made of Baccarat handmade crystal, adorned with a 5-carat white diamond and an 18-carat gold collar.

The packaging of Clive Christian No. 1 is the main driver of the price, and this is the key point about luxury fragrances. The scent is important, but it is still a sideshow to the presentation of a bottle and the luxury credentials of the brand. For the new generation of emerging market trendsetters, with cash to spend, the core of luxury attraction is related to how much a brand says about their social status. It is aspirational consumption on a scale that fast-moving consumer goods markets have never seen before.

The latest super premium fragrance from Giorgio Armani (Armani Prive La Femme Bleue) is limited to only 1,000 bottles, with a price tag of around US$600 for a 100ml bottle. This type of limited edition branding is common in luxury wines and spirits, because it flexes the type of exclusivity that gets fashionistas pulses racing. The limited edition brands themselves are not about making money, but about creating an aura around an umbrella brand. In fragrances, brand loyalty is strong. But, the loyalty is often to the label, not necessarily to a specific scent. Armani Prive La Femme Bleue could, in short, give significant impetus to the Armani fragrance line as a whole. Indeed, much more limited edition branding is expected in luxury fragrances going forward, which in turn will give impetus to the super premium fragrances category.

The luxury aspiration X factor

The notion that consumers in China, Brazil and Russia will reject a fragrance because it smells too French or too Italian is simply not true. Fragrances do not need to capture the scent of a country to become a desired luxury product. The way a super premium fragrance is perceived is more directly related to its positioning, and indeed to the packaging and the luxury credentials of the name. Bond No. 9 has a strong association with New York neighbourhoods, which is a key driver of demand. But that is down to the packaging, commercialisation and branding. The scent came later.

And consider the case of Comme de Garcon. The brand is often associated with French sophistication, even though it is Japanese. And for its first foray into fragrances, Comme de Garcon chose an English perfumer, Mark Buxton. Comme de Garcon perfume subsequently became associated with something quintessentially Japanese or quintessentially French or quintessentially British, depending on your perspective. The point is that most of the new generation of wealthy BRIC consumers will engage with super premium fragrances in terms of how emblematic they are of luxury and sophistication and not depending on whether they smell French, Italian or Japanese. Perfumers may be key to creating added value finesse, but the way a luxury fragrance is packaged and branded has to be more important. That is where the category needs to be channelling its biggest dose of emerging market investment over the next five years.

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