"Even as financial market turmoil impacted the United States during the second half of the year, luxury goods makers, high-end services providers, and auction houses all found ready clients in the emerging markets of the world – most notably, China, India, Russia and the Middle East – thereby sustaining their own growth," said Bertrand Lavayssière, managing director, Global Financial Services, Capgemini.
While investments of passion remained healthy among HNWIs and Ultra-HNWIs, the Report found that allocations varied significantly from region to region, and between mature and emerging economies. Further differences emerged among spending on tangible passion investments, such as art collections and intangible investments, like experiential travel.
Private jets, custom yachts, high-end automobiles and other luxury collectibles accounted for 16.2 percent of passion investments among HNWIs as a whole, followed closely by fine art at 15.9 percent. Jewelry held third place at 13.8 percent and luxury/experiential travel ranked fourth at 13.5 percent. These four categories –the most expensive of the passion investments examined in the Report –together accounted for more than half of all luxury item expenditures among the HNW population.
Spending among HNWIs and Ultra-HNWIs in each of the four categories remained brisk last year, despite their rising costs. The Forbes Cost of Living Extremely Well Index (CLEWI), which tracks the year-to-year cost of a basket of goods, increased 6.2 percent from 2006 to 2007, more than twice the rate of inflation. Despite hefty price increases, various luxury segments reported record sales figures in 2007, testifying to the unquenchable appetite of HNWIs and Ultra-HNWIs for luxury items.
Global Preferences: Luxury Collectibles
Luxury collectibles were the most popular passion investment among the HNW population in 2007, especially among Latin Americans. While North Americans have traditionally been the largest purchasers of private jets, demand for Gulfstream jets from overseas buyers surpassed that of North Americans for the first time last year, according to U.S.-based General Dynamics.
Meanwhile, Ferrari recorded unprecedented growth in emerging markets, with sales increasing by 47.2 percent in the Asia-Pacific region and 32.3 percent in the Middle East. Two of Ferrari’s traditionally largest markets – the U.S. and Germany – recorded strong, yet single-digit, sales growth.
In recent years, the yacht market long dominated by Middle Eastern HNWIs and Ultra-HNWIs, has been led by Russian buyers. The still under construction Eclipse, believed to be the world’s largest private yacht, is reportedly owned by a Russian oil billionaire.
Global Preferences: Fine Art
Demand for fine art – was strong in both mature and emerging markets. As in the past, more Europeans – at 22 percent – and Latin Americans – at 21 percent – invested in fine art last year compared to their counterparts in North America – at 11 percent, the Middle East – at 10 percent, and Asia – at 13 percent. UHNWIs, however, allocated more to art than any other luxury category.
Newly minted millionaires from Moscow to Mumbai, many of whom made fortunes in the global commodities boom, were active at art auctions last year. Christie’s International and Sotheby’s both profited from the expanding Russian economy, with their combined Russian sales totaling $324.9 million, a 45-percent bump from their $223.6 million total in 2006.
Global Preferences: Jewelry, Gems and Watches
Although jewelry, gems and watches only ranked as the third most popular passion investment among the global HNW population in 2007, HNWIs and Ultra-HNWIs in the Middle East and Asia favored this as their number one investments of passion category.
Global Preferences: Luxury/Experiential Travel
With luxury goods increasingly within the reach of upper-middle class individuals, especially in more mature markets, HNWIs and Ultra-HNWIs continued to differentiate themselves last year with “exclusive experiences.” As a result, the HNW population spent a considerable amount on such indulgences, including impromptu trips to Italy to race a Ferrari, or a three-week trip across the world, including stops along the way in Africa’s Serengeti and Peru’s Machu Picchu – to ensure that they continued to “live the dream.” Philanthropic travel is also on the rise, with more HNWIs seeking out opportunities to engage in charitable work, while still enjoying luxurious accommodations. Tour operators arrange for wealthy clients to visit schools, health clinics and poor neighborhoods to see firsthand how financial donations might be implemented. Over the past two years, demand for such trips has grown 15 percent among HNWIs, according to luxury tour operator Artisans of Leisure.
Looking Ahead
Industry analysts state that the global art market and luxury industry tend to be latecomers to economic downturns, which may explain why they did not experience the impact of the financial market turmoil of 2007. However, history has shown that investments in fine art, private planes, luxury cars and other high-end collectibles tend to fair well during economic downturns. In fact, analysts suggest that new wealth and growing consumer demand in Asia, Eastern Europe, and the Middle East will continue to outweigh the pressures of the economic slump in Western Markets.
