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Wealthy tourists ensure UK luxury market strikes it rich

A quick glance at recent retail sales and you could be forgiven for thinking the doom and gloom is pervasive on the UK high street.

But beneath the dreary picture of falling sales figures and jittery consumer spending, the fashion sector contains one of the UK economy’s few bright spots - the luxury market.

The luxury industry is in rude health. Research by luxury trade body Walpole shows that, through a combination of increased spend by visitors to the UK and overseas expansion by British luxury brands, the sector will grow 57% to £9.4bn by the end of 2015.

Guy Salter, deputy chairman of Walpole, describes the luxury sector as “Britain’s unknown growth industry” and a “great example of something this country is globally competitive at”. He adds: “It is also a timely reminder of the benefits of luxury brands in attracting visitors and flying the flag with affluent consumers around the world.”

Bags packed

According to figures from tax-free shopping operator Global Blue, in 2011 there has been a rise in affluent, young, middle-class
shoppers from the Middle East heading to the UK for shopping mini-breaks. There has also been a rise in shoppers coming here from China, and more Russians are visiting the UK in search of affordable high street fashion.

Global Blue UK vice-president Nigel Dasler says there is further potential from the two other BRIC nations - Brazil and India, the latter of which he believes will become an increasingly important market.

“With its range of high-end down to high street brands, the UK is uniquely placed to serve the tourist market,” he adds. “Plus, over the next two to three years there will be the halo effect of the Olympics and there is also next year’s Diamond Jubilee.”

These events will add to the glamorous spectacle of the royal wedding and growing interest in the Duchess of Cambridge, a supporter of British fashion, meaning the UK holds an allure that retailers must capitalise on.

Consumers’ willingness to spend on high-end fashion and the trickle-down effect on the more premium end of the high street is evident. Last week, Mulberry reported a staggering 358% rise in pre-tax profits to £23.2m for the year to March 31, while Ted Baker said it planned to open in China after recording a 15.2% rise in group revenues in the 19 weeks to June 11.

The interest in high-end fashion has not been restricted to shoppers. Investors have clamoured to snap up luxury labels, with a flurry of acquisitions in the UK over the past two months. Swiss luxury goods group Labelux bought footwear brand Jimmy Choo and outerwear brand Belstaff last month, and Jones Group, the US owner of footwear chain Nine West, snapped up footwear retailer Kurt Geiger at the start of June.

Meanwhile, the frenzy caused by the planned Hong Kong IPO of Italian luxury brand Prada - which at its height looked set to raise $2.6bn (£1.6bn) for a 17% stake - shows that interest is far from confined to the UK. The Prada IPO is now expected to raise more like $2.1bn (£1.3bn) when trading begins on June 24, but the brand is still highly valued compared with its rival luxury goods businesses.

Mind-boggling growth

While the Middle East is now seen as a maturing market, many of the countries hungry for luxury goods are emerging markets, and the current demand only hints at the future potential. Goldman Sachs defines a luxury shopper in China as someone earning more than $30,000 (£18,500) per year. There are currently 12.5 million such people, but that figure is forecast to leap to 200 million by 2015. “That’s when it becomes mind boggling,” says Dasler.

With an ever-increasing number of tourists, particularly from China, expected to head to the UK in the next couple of years, there is potential for fashion retailers - at all ends of the spectrum - to take advantage of shoppers that see the ownership of British products as a status symbol.

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