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Luxury Watch Market in Russian and Ukraine
Aginsky Consulting Group, July 2008
One of the luxury goods categories to see the largest increases in sales is fine watches, which rose 39% in 2007. (6) According to the Federation of Swiss Watch Industry, there has never been a better time for luxury watches. In February 2007 exports of Swiss watches increased 22.7% from the previous month due chiefly to the most expensive timepieces. (7) Executives describe market conditions as phenomenal; their most expensive luxury products have reached unprecedented levels of success due in part to ever-expanding wealth worldwide and soaring demand in Asia, Russia, the Middle East, and the U.S.
Russian Market
Since 1999, Russia has experienced outstanding growth rates, constantly improving macroeconomic conditions, and a growing involvement in the global economy. These achievements, together with high world oil prices, political and economic stability, and skyrocketing foreign direct investment have all contributed to the growth of the country's economy.
Russia's growth: Russia is the fastest growing economy in the G8 group of industrialized nations. Over the last seven years, Russia's economy has grown by an average rate of 7% each year and is projected to grow at the same or higher rate YOY through 2010. In 2007 Russia's growth exceeded all expectations (7.6% GDP growth), accelerating in several key economic sectors such as retail, real estate, tourism, and communications.
Russia's stability: Russia has a very stable macroeconomic situation. Inflation runs below 10%, foreign currency and gold reserves have increased to around $400 billion and are now the world's third largest after China and Japan. The strength and stability of the economy was noted by the major credit rating agencies (S&P, Moody's, and Fitch), all of which awarded Russia an upgraded investment rating in 2006. In addition, the stable political environment has contributed to make the country one of the favorite destinations in the region for foreign investors.
Investment: The excellent macroeconomic conditions make Russia a thriving capital market that foreign investors are increasingly finding more attractive. Foreign investment for the first half of 2007 totaled $67 billion, compared, for instance to $14 billion in Poland in the entire 2006. Economists say that, 'unlike in China, there are no signs of overheating of the economy detectible. Modern Russia has never before seen such a growth rate and economists expect the tendency to continue.' Given the most favorable conditions offered by the Russian market, the size of domestic investment is soaring as well, with local entrepreneurs reinvesting their capital in the country's economy.
Consumer demand: In the past years, Russia's model of economic growth has notably changed, with retail, telecommunication, and construction, among others, becoming key drivers of the country's booming economy. Citizens' real incomes have doubled over the past six years and consumer demand is thriving. The flourishing Russian economy has given rise to a growing middle and upper class that 'has caused an explosion in all types of consumption.' Not only is Russia's percapita income, at purchasing power parity (PPP), well above that of Mexico, Brazil, Turkey, China, and even EU members Romania and Bulgaria, but also '70% of Russians' income is disposable, vs. around 40% for a typical Western consumer,' making it a very attractive market for FMCG, food and beverage products, apparel, and luxury goods.
Luxury Market in Ukraine
Ukraine is outpacing the world in annual growth of the luxury retail market. In 2006, while worldwide luxury retail market's annual growth was estimated at about 10%, Ukraine was growing four times faster, reaching a 40% growth rate. The Ukrainian luxury market is projected to increase by nearly 125% between 2006 and 2012. In fact, Ukraine's average spending in luxury stores is higher than Russia's. Given their propensity towards luxury spending, they make an excellent market for luxury watches. Luxury Watches in Ukraine Ukraine is a promising market for luxury watches. In 2005, Ukraine was the 30th biggest importer of Swiss watches; in 2006 they rose to the 24th biggest importer. Dollar sales also show the increase in demand for watches, due to the rise in sales of 50% in 2006. According to the President of the Federation of the Swiss Watch Industry, Jean-Daniel Pasche, Ukraine is the second largest market for watches among the Eastern European countries.
Luxury watch purchases in Ukraine have become more prevalent due to an enhanced product offering and easier access to the top producers. Watch consumption is dominated by men in Ukraine, who prefer classical watches, which accounts for 60-70% of watch purchases. The technical aspects of watches are generally most important to consumers.
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