The DNA of Spanish luxury goods

María Eugenia Girón. Professor. IE Business School

16 January 2013

There are plenty of examples that evidence Spain’s potential in the luxury sector, but first it has to assimilate some of the basic principles of success, beginning with internationalization.

Who can say exactly what comprises Spanish luxury, thereby pinpointing its true identity? The problem is that any given definition of luxury could be considered an exaggeration by some while others would see it as an understatement. Nevertheless, it is possible to have a snapshot of the Spain’s luxury sector. How much top-of-the-range fashion is sold in Spain, how many accessories, jewelry, watches, cosmetics, or what we call personal luxury? And what if we add cars and so-called luxury experiences, including hotels, yachts and gastronomy?

Seventy five billion Euros were spent on personal luxury goods in Europe in 2012, some 27% of the world total of 200 billion, based on sales figures for 280 leading brands. This includes sales of €18 billion in Italy, €15 billion in France, €11 billion in the UK, and almost €5 billion in Spain.  Hence Spain comprises 6.7% of the total sales of personal luxury goods (fashion, accessories, jewelry and cosmetics) in Europe and 2.4% in the world. If we add the remaining categories we are talking about almost €20 billion.

If we go into these figures in more detail, we discover how many of these purchases are made by tourists. Some 48% in Italy, 42% in France, and 28% in Spain, where the sale of personal luxury goods to tourists grew by 22% in 2012, having grown by 8% in 2010, according to a study conducted by the IE Business School Observatory on the Premium Market.  This means that the growth in Russian and Chinese affluence has brought an additional benefit to Spain’s cities in the form of growing sales resulting from tourism, now that shopping is a universal pastime.

In the 80s, a sudden surge in the sector came from Japan.  The Japanese obsession with quality led to a fascination with the Loewe’s exquisite products. We remember them descending on the Loewe’s flagship store in Madrid’s Gran Via, discovering the dainty handbags made of 7000 leather (referring to the thickness, which must be 0.7 cm) in a range of bright colors that totally seduced them.  Later came the Russians, who have shown a weakness for luxury throughout history, filling palaces with art and opulence. They were the main clients of Parisian Jewelers at the beginning of the twentieth century, and recently they made a comeback and were eager to make up for lost time. They became Carrera y Carrera’s biggest customers. A decade ago we began to witness the economic awakening of the Asian giant, along with its fascination with luxury brands.  In 2011, Chinese tourists spent over €15 billion on luxury goods in the course of their travels.

Spain is the second country in Europe in terms of tourism with almost 60 million visitors, but it still has a long way to go when it comes to increasing sales in iconic luxury brands, particularly Spanish ones. El Corte Inglés is set to leverage this opportunity, having refurbished its flagship store in the middle of Madrid’s Paseo de la Castellana en Madrid. As well as stocking leading luxury brands, it provides advisers and interpreters for speakers of Russian and Mandarin. Further development of city tourism will bring more such collateral benefit. Better connections between Madrid, which according to a Mastercard study is the seventh most visited city in Europe, with Shanghai and Beijing would help. We do not want tourists to arrive in Spain after they have spent their euros in Milan or Paris.

If we look at this from a supply perspective, we find that Europe holds a leading position, or a comparative advantage, in terms of so-called luxury goods. European brands account for 70% of the personal luxury goods sector. These brands are responsible for 900,000 European jobs. Where does Spain stand in this respect? In the case of personal luxury goods very few Spanish brands form part of this exclusive club. Loewe, Natura Bissé and Carrera y Carrera are three examples of Spanish brands that can be said to belong to the personal luxury sector due to their prestige and their international presence.

There are three and a half million families in Spain who habitually buy some kind of luxury item. Of these, almost three million will buy mainly fragrances and cosmetics. Some 150,000 families spend more than   €10,000 per annum on personal luxury goods. It is a substantial segment and there is certainly an interest in these luxury products, as evidenced by the number of readers and subscribers of fashion magazines. Moreover research published recently by the Observatory on the Premium Market serves to highlight the fact that the Spanish now buy one in seven of their luxury products via internet, which is an indicator of the level of sophistication of the domestic market. Why then, in a country with a promising domestic market, with interested consumers, are there so few luxury brands?   Why aren’t there more brands in the luxury universe of Spain, one the cradles of creativity with a long tradition of craftsmanship?

Spain is the birthplace of Picasso, Dalí, Gaudí, Fortuny and Balenciaga, all of whom were not only great artists but also revolutionized the sectors in which they developed their creativity.  The history of art and painting is now defined as before or after Picasso. Dalí is one of the most universally known names in the world of creativity, with followers that are fanatics rather than admirers. Gaudí’s visión opened up new doors to architecture, to the extent that it is entirely possible that contemporary architects who admire curved lines, like Frank Gehry, may not have existed without Gaudí’s legacy. And then there is Balenciaga, who also revolutionized fashion, playing a key role in its transformation, moving away from a focus on the ornamental to center more on structure and form. These are just some examples of groundbreaking creativity that the Spanish are capable of.

Creativity and a capacity for innovation are the raw materials of the luxury industry. The iconic brands we all know are built on stories of innovation.Why then has Spain not been capable of transforming this creative force into business and profits? What is different about European countries which have been able to take a leading position in the sector? Why are luxury conglomerates and key brands mostly French and Italian?

The reality is that Italian brands are always the first to explore new markets on the strength of a promise. In Italy, internationalization is an objective for every new business launched. Perhaps Marco Polo, a pioneer in his travels to Asia, left this distinctive trait forever present in the DNA of the Italian people. Prime examples include firms like Ermenegildo Zegna, which was of the first companies to set up in China some 20 years and has been the first to open an outlet in Lagos with its vision of the future importance of the African market.

In France the sector is a result of longstanding tradition,  and a conviction that anything that is beautiful is a good business. It was Jean-Baptiste Colbert, the minister of finance of Louis XIV, who identified luxury as a driver of economic development. Today, large luxury brands like LVMH or PPR have a French passport. Although many of the firms are born in Italy, the moment they reach a certain size they become part of French groups, like Bulgari did in 2011. This frequent occurrence gives cause for a great deal of concern in Italy. But we will leave the two countries to resolve it between themselves as we return to the question about Spain.

It’s easy to see that in Spain there was no clear conviction of the importance of the fashion and luxury sector. We only woke up to it when Inditex became a world leader.  And we didn’t even know that we could do it! More than anything else, there was a lack of international projection.

The only luxury goods firms in Spain that have managed to become members of the exclusive international brand club are those that have included growth and development in the equation.  It was a German, Loewe, who realized that the quality of Spanish craftsmanship combined with the beauty of its raw materials was an asset that begged for international expansion. Our hallmark leather goods, coupled with international designers brought in during the sixties, has been selling in Japan since the seventies, having carved out an international position for itself over fifty years ago, based on a strong Spanish identity.

Natura Bissé, which was not a well-known brand in Spain when it decided to enter the US market with a bank and propose the idea of opening a beauty salon to elite New York store Bergdorf Goodman. The family promptly moved to the big apple because they decided that the project was vital for its brand, rather than just complementary. Today Natura Bissé is one of the most valued luxury cosmetic brands in the US.

Years earlier, in the eighties, the partners of  Carrera and Carrera decided to open a branch in Miami where it began its international expansion, going on to become the only Spanish jewelry brand present in countries from Japan to the US, including Russia, where it is now a leading firm. The Russians who know their jewels consider Carrera as the Spanish Fabergé.

And then there is the Puig group, which evolved from creator of fragrances to a luxury brand holding. It climbed positions patiently and skillfully until it managed to integrate brands that inspired and launched its most successful perfumes. It is a Spanish family with a vocation for the luxury industry, and the owner of Nina Ricci, Jean Paul Gautier, Paco Rabanne and Carolina Herrera.

These are just some examples (others include  Pedro García or Tous) of Spanish brands that demonstrate that when a company thinks big and international, Spain’s tremendous creativity makes it possible to build and develop luxury brands.

Perhaps personal luxury goods are just not Spain’s forte? Could it be that Spain will  one day triumph in the luxury sector but via other luxury categories?  Didn’t Ferrán Adriá, another of Spain’s great transformers, show us with his front cover on the NY Times that Spain’s essence of luxury lies in the field of gastronomy, in fine cuisine? Three of Spain’s restaurants are among the world’s top ten. Home-grown products like Iberian ham already enjoy international fame in the gourmet sector. What Ferrán has already shown us is that there are no barriers, no excuses. All you need is creativity and an aspiration to excellence to be successful. For consumers who seek the best, no distance is too great. However, I still think that my previous theory still holds, namely that a view to international expansion from the outset is vital for Spanish luxury firms to succeed.

“Beauty does not give happiness to the person who possesses it, but rather to the person who can love it and worship it.”  Herman Hesse, German born Swiss writer

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