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South Koreans are the world’s biggest spenders on luxury goods

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Handbags displayed in a Chanel SA store window on the Avenuel department store, operated by Lotte Shopping Co Ltd., in Seoul, South Korea, on Tuesday, Dec. 14, 2021.

SeongJoon Cho | Bloomberg | Getty Images

Whether it’s calf-leather Italian Prada bags or classic, checkered British Burberry trench coats, South Koreans are the world’s biggest spenders on personal luxury goods per capita, Morgan Stanley said.

The investment bank estimated South Korean total spending on personal luxury goods grew 24% in 2022 to $16.8 billion, or about $325 per capita. That is excess of the $55 and $280 per capita spent by Chinese and American nationals, respectively, in response to Morgan Stanley estimates.

Luxury brands have also highlighted strong sales in Korea.

Moncler said its revenue in South Korea “greater than doubled” within the second quarter compared with before the pandemic. Cartier-owner Richemont Group said Korea was among the many regions where sales grew by double digits in 2022, compared with each a yr and two years ago.

While Prada said China lockdowns contributed to a 7% decline in 2022 retail performance, the style house said the drop was “mitigated by the strong performance in Korea and South East Asia.”

Markers of economic success

Morgan Stanley analysts explained the demand for luxury goods amongst South Korean buyers is driven each by a rise in purchasing power in addition to a desire to outwardly exhibit social standing.

“Appearance and financial success can resonate more with consumers in South Korea than in most other countries,” analysts wrote within the report.

People attending a Gucci ‘pop-up store’ event within the Gangnam area of Seoul in September 4, 2015

Ed Jones | Afp | Getty Images

Displays of wealth are also more socially acceptable in Korean society. A McKinsey survey found that only 22% of Korean respondents consider showing off luxury goods to be in bad taste, compared with 45% of Japanese and 38% of Chinese.

The demand in luxury wares was also supported by the rise in household wealth. Bank of Korea data shows the country’s household net price rose 11% in 2021. About 76% of household wealth in Korea is in real estate, prices for which have increased substantially since 2020.

The investment bank also noted luxury houses have tapped Korean icons to further catalyze demand.

“Nearly all of the main Korean celebrities are brand ambassadors of the leading luxury houses,” the report noted, like Fendi and actor Lee Min-Ho or Chanel and rapper G-Dragon.

Dior made Blackpink singer Rose the face of its HardWear collection, which the style house said was “very well-received” and doubled sales for the road.

Nevertheless, Bain & Company cautioned against the usage of per capita metrics for luxury good consumption.

“Luxury by definition shouldn’t be a mass market product,” Bain & Co partner Weiwei Xing told CNBC.

“I’d suggest to prorate the whole luxury spending by variety of population that is middle class and above, which can be a more meaningful measure to reflect attitude and consumption towards luxury,” Xing said, adding that may narrow the gap.

A customer carries a Chanel SA shopping bag in Seoul, South Korea, on Tuesday, Dec. 14, 2021.

Bloomberg | Bloomberg | Getty Images

Untapped potential in China

Still, Morgan Stanley said the thriving Korean luxury market is a “good preview” of what the Chinese luxury market could develop into, which it said stays “underpenetrated.” The analysts said the 2 countries share similarities in disposition toward luxury items as status markers.

Presently, South Korean annual per capita spend on luxury goods stays greater than six times higher than that of Chinese spenders.

Globally, McKinsey projected the luxury market to grow between 5% and 10% in 2023, buoyed by demand from the U.S. and China.

“We expect growth to resume after China recovers from the present Covid waves, which should occur by the primary quarter,” Xing said.

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