Poland: Spotlight on Key Market Trends in Luxury Goods
Impressive Sales Results for Luxury Goods
Valued at PLN3,439 million (US$1,175 million) in 2010, the Polish luxury goods market currently ranks 20th out of the 26 countries covered by Euromonitor International’s luxury goods research, but it is one of the fastest growing. Between 2005 and 2010, the luxury goods market grew by 50% in real terms, making it the fourth fastest growing behind China, which achieved real growth of 59% over the same period.
Growth in overall luxury goods has been fuelled by brisk economic growth and an increase in the number of high-earning households. The Polish market for luxury goods is relatively young and therefore value sales across all categories recorded a significant increase over the last five years. By 2010, almost all had registered impressive double-digit sales growth. Polish consumers have started buying more high-end products and are seeking more sophisticated international brands. To add to this, Polish consumers have acquired a strong taste for luxury goods. This can be confirmed by the activities of many of the leading international luxury players which have already entered the Polish market, with further arrivals expected and eagerly awaited by the end of 2011.
Strong economy, strong middle-class
Four years after joining the EU, the Polish economy has undergone an extreme transformation. Booming exports and increased investment have finally triumphed over hyper-unemployment, which fell from 18% in 2005 to just 10% in 2010. Indeed, Poland was the only economy in the EU to escape an economic recession in 2009 thanks to its strong reliance on domestic demand. This demand has created a positive backdrop for strong growth in both income and expenditure, fuelling demand across the luxury goods market.
Poles are becoming increasingly westernised in their luxury purchasing habits, while at the same time remaining relatively conservative in terms of their social attitudes. The pace of change is likely to accelerate over the next 10 years as migrants return home with broadened horizons and, in many respects, westernised, as their luxury goods preferences have been heavily influenced by their experiences abroad.
Poland’s total disposable income in 2010 stood at US$300 billion, comprising 17% of total disposable income for the Eastern European region. The number of Polish households with an annual disposable income of US$300,000+ reached 74,000 in 2010, up by 27% since 2005. The average income growth of the richest 10% (decile 10) of Polish households outpaced that of all other income bands between 2005 and 2010, making this group of the population a very attractive target for companies offering luxury products.
Poland’s real GDP grew by 0.8% over Q4 2010, and by February 2011 consumer confidence had increased to reach its highest level in seven months. These are both extremely important factors affecting the Polish luxury goods market. The increase in number of aspirational consumers who wish to underline their social status or success by the brands they buy has resulted in an increase in demand for luxury goods and therefore contributed to favourable market conditions for the industry.
Largest category, luxury jewellery and timepieces, underwrites overall luxury growth
Valued at an estimated PLN1,164 million in 2010, luxury jewellery and timepieces is by far the largest luxury goods category in Poland, accounting for 34% of the total market, up from 30% in 2005. Real growth of 68% over the review period translated into a massive real absolute increase of PLN469 million, also making it the fastest growing category. This stellar performance can be attributed to a significant shift in consumer confidence, higher spending on jewellery and strong promotional activity from the key players in the category.
Men’s and women’s luxury timepieces have been the primary areas of growth, registering real increases of 96% and 114%, respectively, over the five years to 2010. All men’s and women’s categories performed well throughout the review period. Men’s luxury jewellery, in particular, has gained momentum since 2005. Prior to this, men would traditionally wear a wedding ring and a gold neck chain at most, and would prefer to buy a luxury watch rather than luxury jewellery. However, male consumers, often with a successful career path, are ready and eager to spend more on sophisticated and exclusive jewellery pieces. Another factor driving growth, similar to many luxury markets, is the perception of luxury jewellery and timepieces as an investment rather than an unnecessary or extravagant purchase. For high net worth individuals and higher-earning households, therefore, luxury jewellery represents a tangible asset, purchased partly for its potential to gain value, its relative safety and its potential to hedge against external financial pressures such as inflation and currency risk.
Aggressive marketing and advertising campaigns have also been paramount to the success of the Polish luxury jewellery and timepieces market. According to some of the key domestic retailers, Polish consumers pay a great deal of attention to a visible logo and recognisable brands. The success of such brands as Omega, TAG Heuer or Rolex might be strong evidence of this trend. Maurice Lacroix, a relatively new member of this Polish market, yet a widely promoted brand, has been successful in conquering the minds and wallets of Polish customers.
The Polish market for luxury jewellery and timepieces is highly seasonal, with almost half of jewellery purchased as a gift. To this end, the months around Christmas, New Year and St Valentine’s Day record the highest sales. Given that only two-thirds of global luxury watch and jewellery brands are available in Poland, and many wealthy consumers go abroad for their summer holidays and tend to buy luxury products and brands overseas, the summer remains a “dead season” for retailers in this category.
Luxury Goods by Category, 2010: % Value Shares
Fine wines, champagne and spirits and designer clothing and footwear remain the second and third largest categories
Fine wines/champagne and spirits was the second largest category, registering a real increase of 45% in the five years to 2010 to amount to PLN700 million. Its best performing categories were fine still light grape wine, luxury tequila/mezcal and luxury rum, which all achieved double-digit real growth rates over the review period. Luxury spirits categories are emerging in Poland, and undoubtedly benefited from the opening of a number of fashionable nightclubs, bars and luxury boutique hotels in the “noughties”, including Bar 13 at the Likus Concept Store, Blow Up Hall 5050 and Likus hotels and restaurants.
Luxury vodka, being the Polish national alcoholic beverage, remains the most popular and largest category within fine wines/champagne and spirits. In spite of its small size, the imported super-premium vodka niche has bright prospects for development in Poland due to gradually changing Polish preferences for global vodka brands. Super-premium products will gain significant ground in the alcoholic drinks market and the trend towards the premium segment will drive sales of niche products like cognac and whisky. However, despite this increasing popularity, Polish luxury vodka has retained its dominant position in fine wines/champagne and spirits. Polish luxury vodka brands such as U’Luvka, Wyborowa Exquisite, Ultimat vodka and Chopin all increased their brand shares as a direct result.
Aside from fine non-grape wine, which posted only 6% value growth over the five years to 2010, all other categories recorded double-digit growth over the same period.
Designer clothing and footwear is the third largest luxury category in Poland of those covered by Euromonitor International’s luxury goods research, and was estimated to be worth PLN611 million in 2010, having increased in real terms by 55% since 2005. This also makes it the third fastest growing category behind luxury travel goods, which grew by an impressive 88% over the review period to reach a value of PLN59 million in 2010]. Men’s designer shirts and men’s designer tops recorded the strongest growth over the five years to 2010, growing by 100% and 94%, respectively. This impressive growth has been fuelled by the growing interest of Polish men in fashion and designer brands.
In terms of brands, the designer clothing and footwear market is highly fragmented, with Polish designers still having a strong hold on the couture niche, whilst international luxury labels are highly sought after in the ready-to-wear niche. Hugo Boss is currently the most popular brand in Poland. The company’s strong position and share stem from its wide product range, good distribution and strong brand presence and heritage. Max Mara, Hexeline, Armani, Zegna, Burberry, Escada, Max&Co, Deni Cler and Church’s shoes also feature high on the most wanted list.
Despite this impressive double-digit growth, only one-third of the world’s global luxury brands of designer clothing and footwear are currently available in Poland, meaning a large percentage of the most coveted brands, such as Prada, Gucci and Valentino, are not available. Those designer brands that have already entered the Polish market, such as Armani, Zegna and Burberry, have a limited product range and often the latest season’s collections are not available. To this end, many luxury consumers in Poland are forced to spend their money abroad, where the product range is much wider.
Ahead of London and New York, Germany remains the most popular outbound destination for luxury shopping, with many savvy Poles heading over to Berlin to hunt down their favourite designer labels. According to data from Euromonitor International’s travel and tourism research, leisure departures to Germany accounted for a 72% share of overall departures in 2009, increasing by nearly two percentage points on the previous year. Berlin owes its high ranking to its proximity to Poland, with travelling time being shorter and transport costs lower.
Luxury accessories, valued at an estimated PLN265 million in 2010, grew by 39% in real terms over 2005-2010. The growth drivers in this category have been luxury eyewear and men’s luxury accessories. Men’s luxury bags, ties and cufflinks have been the star performers, with all three registering real growth of around 60%. Luxury men’s bags have additionally benefited from the growth of men’s luxury overall, a trend which has really taken off since 2003. However, the market is strongly exposed to counterfeits, with luxury bags, wallets, eyewear and belts at the top of the list of counterfeit products sold in Poland.
Highest Real Value Growth (%) by Luxury Goods Category: Poland 2005-2010
Despite the economic slowdown, the Polish super premium beauty and personal care market performed well over 2005-2010, growing by 51% to reach a value of PLN307 million, with sales rising across all categories. Appearance issues continue to gain strength in Poland as a growing number of Poles pay more attention to how they look and feel. This, in turn, has translated into growing interest in super-premium beauty and personal care products for different genders, age groups, skin types and skin problems. The media play a vital role in shaping demand for beauty and personal care products as they heavily promote beauty standards. Consequently, many consumers wish to achieve the look of popular celebrities and are spending increasing amounts on advanced beauty and personal care products that claim to boost personal image. Super-premium skin care grew strongly on the back of a remarkable increase in premium anti-agers, which recorded the strongest growth over the last five years. This reflects the continued consumer demand for products with perceived high quality and the loyalty of luxury consumers to premium brands and channels.
Luxury tobacco, valued at PLN126 million in 2010, registered real growth of 31% over the review period. Luxury handmade cigars remained by far the leading category with a value share of 90%. However, still very much in its infancy, luxury handmade cigars, which reached PLN115 million in 2010, are considered extravagant purchases for the average Polish smoker and are generally only smoked on special occasions. Cigars overall are basically the preserve of upper-income consumers and are generally associated with male smokers. Nevertheless, demand for luxury handmade cigars is growing gradually for a number of reasons, such as broader distribution, greater consumer awareness of the products and a developing cigar culture, as well as a number of new product developments offered in a number of premium-priced segments. To date, cigar clubs for cigar aficionados are still in their infancy in Poland and are few and far between. However, their number is expected to increase alongside the expanding consumer base. Cohiba, from Premium Cigars Sp zoo, is currently the leading brand of choice.
Although it is the smallest category at an estimated PLN8 million in 2010 and is still very much in its infancy, luxury electronic gadgets recorded real exponential growth of 30% over 2005-2010. Luxury mobile phones have been the principal driver of growth, posting a stellar real growth rate of 36%, compared with a real increase of 4.5% for luxury MP3 players. Nokia’s Vertu, Samsung (Armani Brand) and LG (Prada) are all key players in Poland’s luxury mobile phones market.
The Polish luxury fine china and crystal ware market grew by 47% over the five years to 2010 to reach a value of PLN90 million. Increasing demand for fine branded china, with well-known global designer brand names such as Armani, Versace and Kenzo, Rosenthal, Meissen and Royal Copenhagen, has been a key driving force behind growth.
Lowest Real Value Growth (%) by Luxury Goods Category: Poland 2005-2010
Retail environment – luxury boutiques and multi-brand stores lead the way in the Polish market
Luxury boutiques and multi-brand stores are the main distribution channels at present. However, it is worth noting that the Polish market has a significant shortage of luxury destinations and exclusive shopping areas along the lines of London’s Bond Street or Rodeo Drive in Beverly Hills. To this end, many retailers have been encouraged to open multi-brand stores. One firm favourite amongst sophisticated Polish shoppers is the Likus Concept Store, now located in Warsaw, Krakow and Wroclaw. Set in restored historic buildings, these stores are home to some of the finest luxury goods and niche brands that Poland has to offer.
Aside from Burberry, Emporio Armani, Hugo Boss, Escada and Ermenegildo Zegna, which all have mono-brand stores in Poland, most international luxury brands are present in a handful of multi-brand stores.
Outlook: A bright future ahead for luxury goods
Due to the economic slowdown, the global forecast for luxury goods is rather modest. However, the future is much brighter for the Polish market as luxury goods have become increasingly desirable and in greater demand. This will be further fuelled by the addition of new entrants to the Polish market, such as Italian luxury car giant Ferrari and global luxury brands such as Louis Vuitton, which is set to open its first store in spring 2011, and Carolina Herrera, which opened its first boutique in 2010, along with the development of new distribution channels and infrastructure.
The growing disposable incomes of Poles will continue to boost demand for luxury goods and services, and although the Polish luxury goods market is not forecast to sustain the stellar growth experienced over the review period due to its enhanced base, its projected trajectory is nonetheless impressive. The performance of its luxury goods will allow Poland to maintain its ranking of 20th out of the 26 markets covered by Euromonitor International’s luxury goods research by 2015, whilst it will continue to remain as one of the top 10 growth markets (+38%) over 2010-2015, ahead of eighth-placed Singapore (+34%).
Luxury jewellery and timepieces will retain its premier position as the leading category in Poland’s luxury goods market, projected to grow by 42% in real terms to 2015 to reach PLN1,653 million. All categories within luxury jewellery and timepieces will experience real growth over the forecast period, with particular hot spots being men’s luxury timepieces (+55%) and women’s luxury jewellery (+46%).
Despite a slight slowdown witnessed in the marriage rate over the review period in Poland, which was due to the political, economic and social changes following transition from a central to a market economy, which took place in the early 1990s, the rate of marriage has been increasing since 2005 and this trend is set to continue to 2015. According to data from Euromonitor International’s Countries & Consumers research, the marriage rate in Poland is set to be the fifth fastest growing across Eastern and Western Europe in the five years to 2015. This trend will underpin further growth in sales of both men’s and women’s luxury jewellery.
The potential of the boutique/lifestyle hotel niche at home and abroad is great as high net worth travellers will continue to prefer unique vacations, of which hotels are an integral part. Growing affluence and a more demanding Generation Y will contribute to a permanent shift to luxury hotels that are lifestyle-driven. This shift will in turn help to fuel growth in the Polish luxury travel goods category, which is forecast to grow by 44% over the five years to 2015. With sales projected to reach PLN85 million by 2015, luxury travel goods is forecast to maintain its position as one of the smallest categories covered by Euromonitor International’s luxury goods research, ahead of luxury electronic gadgets, although its stellar forecast growth places it in second position in terms of the highest growth markets. The long-awaited arrival of Louis Vuitton, which is due to launch in the Polish market in spring 2011, will be a major breakthrough for the Polish luxury travel goods market. The presence of Louis Vuitton’s highly coveted brand will undoubtedly encourage other exclusive brands to enter the Polish market.
Luxury tobacco is forecast to exceed historical growth rates, making it the fastest growing category to 2015. Sales of luxury speciality cigarettes are forecast to virtually drop away as a result of the public smoking restrictions which came into effect on 1 January 2011. By 2015, luxury handmade cigars therefore will account for virtually the entire luxury tobacco category (93.4%), and is forecast to grow by 58% to 2015 as cigar aficionados move up the consumption ladder. Cigar clubs and smoking rooms will continue to grow in popularity and may move more luxury cigar consumption into these non-retail environments. At the same time, due to the smoking restrictions, cigar smokers may look to smoke in the privacy of their homes, which could boost either online sales or in-store purchases.
Super-premium skincare will be the primary growth driver in super premium beauty and personal care, with sales projected to increase by 36% between 2010 and 2015, predicted to be worth PLN95 million in 2015. This strong growth will be underpinned by rising incomes and growing purchasing power, combined with increased penetration of international brands. The super-premium fragrances environment is set to experience further growing demand. Future expectations in terms of economic growth should lead to growing interest in non-basic goods, such as super-premium fragrances. Overall, more Polish consumers will feel tempted to switch brands and try out new products as a result of frequent product innovations and intensive advertising. The group of more affluent consumers remains strong in Poland and they are eagerly reaching for advanced products that offer additional benefits, particularly super-premium brands.
International brands will continue to lead the super premium beauty and personal care market in Poland, despite rumours that domestic players such as Soraya, Kolastyna and Joanna, which all have strong positions in the mass market, have suggested they would like to enter the premium and super-premium space. Due to the challenging nature of this category and the significant costs involved in research and promotional marketing, it is unlikely that this will happen in the short to medium term.
Growth within luxury accessories is forecast to be driven by men’s luxury ties and women’s luxury bags, registering real growth of 38% and 36%, respectively, over the five years to 2015. Owning the “It” bag of the season has caught on among Poland’s elite, especially in Warsaw. This trend will only increase further as more brands enter the market. The largest category, luxury eyewear, is forecast to record real growth of 34% to reach PLN200 million in 2015.
While the review period saw men’s designer outerwear and clothing accessories outperform the women’s categories, the forecast period is expected to see a shift towards children’s designer clothing and footwear. Whilst men’s designer clothing accessories will lead growth in the five years to 2015 (+70%), children’s designer footwear and children’s designer outerwear are forecast to be the second and third fastest growing categories over the same period.
The opening of the Wolf Bracka luxury department store in Warsaw, which is due to launch in spring 2011, will be a major breakthrough for this category. This new luxury store will house some of the world’s top designer brands, including Gucci, Louis Vuitton and Chanel, and will set the scene for further brands and designers wishing to enter the Polish market. The key company behind the Wolf Bracka department store is planning to open similar stores in Krakow and Poznan by 2020, with Paradise Group, the company which, amongst other luxury brands, successfully introduced Armani, Zegna and Burberry into the Polish market, intending to enlarge its distribution and brand portfolio further to introduce at least 50 luxury designer boutiques by the end of 2012.
With projected real growth of 20% over the five years to 2015, the Polish market for luxury writing instruments and stationery will be the least dynamic of all the categories covered by Euromonitor International’s luxury goods research. This market is, however, relatively mature and resilient to economic fluctuations, enjoying a stable group of loyal customers. An increase in consumer spending on luxury goods, higher demand for high-quality and branded products, driven be the wealthier middle-class, will be the key factors underpinning sales in this category.
Fine wines/champagne and spirits is likely to become more diverse over the forecast period as luxury whisky, tequila/mezcal, cognac and champagne build on success in the horeca channel by launching further into high-end retail stores and specialist boutiques. These categories will fuel overall category growth, with sales of luxury whisky forecast to register real growth of 106% to 2015, and other luxury spirits expected to post double-digit growth over the same period. Consumers are predicted to become more sophisticated in their drinking of spirits, a trend which will be strengthened by the expected heavier reliance on women as spirits consumers. It is also expected that growing income disparities will contribute to the growth of ultra super-premium products and categories such as luxury single malt Scotch whisky, luxury champagne and luxury cognac.
Much in line with historic real growth (+29.1), luxury electronic gadgets is forecast to remain stable over the next five years (+29.5%). Luxury mobile phones is projected to increase strongly by 33%, thereby increasing its category penetration from 82.5% in 2010 to 85% by 2015. Similarly, luxury fine china and crystal ware is forecast to grow by 29% over the five years to 2015 to reach a value of PLN116 million. Designer brands are expected to show further impressive sales results, with brands like Armani Casa and Versace Home expected to be extremely popular among younger consumers who want to display their wealth and success through exclusive luxury home wares.