In South Korea, people are happy to spend their money on expensive brands. This puts them at the top of the world. The reasons lie in purchasing power – and social standing.
Bulgari, Gucci, Armani, Prada, Dior: all expensive luxury brands that South Koreans love – especially the younger ones. Often they even queue for it.
Spending by South Koreans on personal luxuries – from designer handbags to expensive suits – rose 24 percent to 21.8 trillion Korean won in 2022, US investment banking and securities trading firm Morgan Stanley reported. That is the equivalent of 16.2 billion euros – or around 300 euros per capita.
This puts South Korea far ahead of China and the USA, where only around EUR 50 and EUR 258 per capita are spent on luxury items. This puts the South Koreans at the top of the world when it comes to luxury shopping.
Luxury brands are doing good sales in South Korea
Italian fashion brand Moncler said its sales in South Korea “more than doubled” in the second quarter compared to before the pandemic, according to the US broadcaster. The Richemont Group, owner of Cartier, said Korea was among the regions where sales grew at double-digit rates in 2022, both year-on-year and the previous two years.
Fashion house Prada suffered a seven percent decline in retail output in 2022 due to the coronavirus pandemic in China. But “strong performance in Korea and Southeast Asia” tempered this.
South Koreans have a penchant for luxury for a number of reasons. Analysts at Morgan Stanley explained that demand for luxury goods among South Korean buyers is also being driven by a desire to show outward social standing.
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“Appearance and financial success may resonate more with consumers in South Korea than in most other countries,” the analysts write in the report. Displaying wealth is also more acceptable in Korean society.
The demand for luxury goods has also been fueled by the increase in household wealth. Data from the Bank of Korea shows that the net wealth of Korean households increased by 11 percent in 2021, CNBC reports.
dr Ahn Dong-hyun, an economics professor at Seoul National University, said millennials have also contributed to the luxury boom. “They may have given up buying a house and instead are trying to make themselves happy with expensive things.” Property prices in South Korea have increased significantly since 2020.
A woman in her 30s told Bloomberg that all of her friends have at least one luxury handbag. “South Korean Generation Z has a motto: Yolo. We can’t buy a house, it’s too expensive, so why should we save money for the future?”
South Korean stars as brand ambassadors
According to a 2022 report by retail giant Lotte Group, purchases of luxury goods by people in their 20s increased 70 percent in 2021 compared to 2018, marking the strongest growth of any age group.
The Morgan Stanley report also notes that luxury brands are using South Korean stars, such as K-pop stars, as brand ambassadors.
“Almost all major Korean celebrities are brand ambassadors for leading luxury companies,” the report said. For example, Fendi works with actor Lee Min-Ho and Chanel with rapper G-Dragon.
Dior announced in January that BTS member Jimin had been signed as a global ambassador. He was surrounded by fans at a Paris fashion show last week.
However, the management consultancy Bain & Company warned against using per capita metrics for the consumption of luxury goods. “Luxury, by definition, is not a mass-market product,” Weiwei Xing, a partner at Bain & Co, told CNBC.
The bubble could burst
However, the thriving South Korean luxury market could be a harbinger of how the Chinese luxury market is developing, according to Morgan Stanley. The analysts explained that the two countries share similarities in their propensity for luxury goods as a status marker.
The management and strategy consultancy McKinsey is forecasting global growth of five to ten percent for the luxury market by 2023, which will be boosted by demand from the USA and China.
“We assume that growth will continue once China has recovered from the current Covid waves, which should be the case in the first quarter,” said Xing.
But in South Korea, the trend will not last long, according to Bloomberg. South Korea’s household debt is higher than that of Japan, Britain and the United States. The Bank of Korea has raised interest rates to 3.5 percent from a low of 0.5 percent in July 2021, ending the era of easy money.
Real estate prices in South Korea also fell the most in the world in the third quarter of 2022 – after a sharp rise in previous years.
‘This type of boom will not last forever and we could see something similar to what happened in Japan in the 1990s’ after the so-called bubble economy burst, says Dr. Lee Wonjae, sociology professor at the Kaist Graduate School of Culture Technology in Daejeon.
Sources: CNBC,
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
