Downturn doesnaa‚¬a„¢t upend upmarket sector

The local luxury market is described as mature by specialists and said to be one of the largest in the region, outranking Poland, for example. Although local brands have so far failed to gain entry to this exclusive category, the market is expected to grow – in spite of the crisis – due to Romanians’ appetite for status symbols. Costly cars, dazzling diamonds, huge houses and catwalk clothes seem to present an irresistible attraction to both the rich and bling-hungry wannabes. BR talked to the experts to get the lowdown on the high-end market.

Corina Dumitrescu

To a foreigner, Romania often seems like a country of contrasts. Decades-old Dacias punt along the road, overtaken by the latest Italian, German or British sports cars that only a small percentage of the world’s population can afford. Some of their drivers may spend a lifetime paying for their fancy vehicles and may never own a house of their own. But first impressions count to such people, who want to impress others with their apparent successful lives and careers, the prestige of owning a luxury brand and of standing out from the crowd. Of course, besides the occasional consumers of extravagant products, there are the privileged few for whom luxury is their day-to-day lifestyle, and these are the main focus of this article.

Oliver Petcu, Cpp Luxury Industry Management Consultants managing director, estimates the current value of the local luxury market at EUR 450 million per year (without including five-star hotels and perfumes). “Currently we are at the level of Poland, above Bulgaria, but below Ukraine, Russia and even Serbia,” adds Petcu. He tells Business Review that the best sold products on the local high-class market are perfumes (Chanel, Dior, Givenchy, Armani), accessories (Louis Vuitton), champagne (Moet Chandon) and fashion – “generally menswear, but not a particular brand”.

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Luxury brands continue to enter the market, as is the case of Gucci, which officially launched its 290-sqm shop on the ground floor of the Athenee Palace Hilton hotel this month (an opening postponed from 2008), after an investment reportedly reaching EUR 1.5 million. Burberry and Prada are also expected to join the fray.

But not all the big names are on their way. “We still do not have major brands such as Hermes, Burberry, Ralph Lauren and Chanel because the local franchisers or partners with the necessary experience and funds are missing,” says Petcu. Moreover, he adds, a dedicated commercial artery is also needed and Bucharest seems to lack “a department store or real-estate project like a shopping center or mall to include more brands and become a destination.” Some might suggest that Cocor Store, launched in September last year as a luxury department store, fits the bill. However, the location is not currently luxury-exclusive, as more affordable brands are also stocked. Moreover, the store seems to be focusing more and more on local designers’ creations, which do not yet meet luxury criteria.

Wanted: Serial luxury shopper

But who is this much talked about customer that luxury brands are so avidly targeting? “There are around four categories,” says Petcu.

“There is the connoisseur: a doctor, lawyer, notary, top executive, aged between 30 and 60 and from Bucharest, Cluj, Timisoara, Constanta or Iasi.” Next is the “aspirational” user, who Petcu says may be found in middle management positions in large companies. Of course, there is also the “on-off” buyer, marked by the instability of his/her occupation or source of funds – “those who make so-called quick money, the entrepreneurs,” who are by no means faithful and stable consumers. And don’t forget the “snobbish” user – “sportsmen, VIPs, television stars, owners of small businesses (the corner shop type).”

What matters the most to these users, regardless of their profile, is the resonance of the brand, says Petcu, especially as concerns fashion, accessories and jewelry. Quality comes next, “an advancement from previous years when it used to rank third.”

High-class brands defy crisis with development plans

Dana Petcu, country manager at EPCD RO, Dior’s subsidiary in Romania, which was founded in November 2010 and become operational in March 2011, spoke of how luxury brands had had to adapt to the financial downturn.

“The crisis affected different categories, cosmetics included, due to some direct or indirect factors. Our partners, the retailers, have already opted for market repositioning, by closing some nonperforming locations, opening or relocating others. Bearing in mind the customer, the brands have become closer and closer to them, competing with top services, which is mandatory for the luxury business.” So, if the customer doesn’t come to the store, then the store must come nearer to the customer.

On the same note, Italian jeweler Cielo Venezia 1273 announced last year the launch of five new stores in Romania in the future.

The targeted locations were Iasi, Cluj, Brasov, Craiova and Pitesti. The company entered the local market in 2008, through a partnership with the jewelry chain Royal Caro, which resulted in the company Cielo Venezia 1270 RO. In 2008, it opened four shops in Romania, which it had upped to 10 by 2010.

The jeweler estimated its turnover for 2010 at RON 10 million, almost double the value registered in 2009, officials said during a press conference last year. The firm’s most expensive and sought after pieces can reach and even surpass EUR 25,000.

In Romania, the company has monthly sales of around EUR 200,000 per store, a rather low sum due to the economic context. “It takes six months for a store to reach break-even point,” said Alexandru Caravaniez, managing partner of the Romanian subsidiary, at the same press conference.

In estimations made by CPP-Luxury last year for the 2011 evolution of the luxury market, a slight growth was expected for the spa segment. Orhideea Health & Spa, located in Orhideea Gardens

residential complex, opened in March this year, as the largest spa center in Bucharest.

The 3,000-sqm location offers various means of relaxation, including an artificial surface salt mine, a swimming pool, saunas and a fitness area. The operator, Eden Spa, invested EUR 3 million in the location.

“The spa market is in full development in Romania. Consumption demand is growing even during the crisis,” says   Liliana Paraipan, general manager of Eden Spa. One explanation for this might lie in the fact that in the stressful context of the financial crisis the consumer requires more time for herself and to find an inner balance, adds Paraipan. The same desire may explain why CPP-Luxury’s evaluation also sees luxury travel consumers embracing trends such as: once-a-year and shorter vacations and more frequent weekend breaks in European capitals. The typical user of spa services, Paraipan explains, is “an active person interested in adopting a healthy lifestyle to improve their wellbeing and function better.” Both men and women use spas, and they are generally aged between 25 and 45.

Things also seem to be looking up for the local car industry. Forza Rossa, Ferrari’s importer in Romania, has received 27 orders locally since the beginning of the year, almost 2011’s target of 28 units, said the director of the dealership in a recent announcement.

Forza Rossa will launch two new models this year, the Ferrari Four in May-June, and towards the end of the year another model about which no details have been disclosed.

Local luxury brands still on the starting blocks

“The market for luxury goods is a highly competitive, marketing intensive, very volatile niche one. Current and mid-term domestic demand in Romania is not sufficient to feed the necessary growth in this market. The key challenge for such a strategy will be to avoid a copy-paste of successful results in one market onto another. What works in Romania might not work somewhere else and vice versa,” said consultant Michael Weiss of AT Kearney in a recent discussion with Business Review.

What local brands seem to be lacking in is the creativity and heritage of the top international brands, Petcu explained, adding that they, more interestingly, suffer due to a somewhat unexplained “hostility to local products”. To achieve success abroad, Romanian firms need to work a little harder. Weiss adds: “New brands from Italy and France have the advantage that they can benefit from the decades of intensive marketing of these countries. Compared to this, a new label from Romania needs to invest significantly more to drum up similar awareness.”

Dana Petcu of Dior, however, remains optimistic and is looking forward to the emergence of the first Romanian luxury brand. “There are some local brands, some fashion retailers positioned as luxury brands with multi-brand presence in their shops, and I should say that the situation is constantly improving, although these brands’ image is mixed with the portfolio products’ image. There are also some other companies in services that are not yet visible. What is still missing is perhaps a flagship luxury brand with its own products, but this will emerge in the future hopefully.”

Moreover, Dana Petcu emphasizes another key issue that affects the local luxury market and sends shoppers abroad. “In the end, if a location is properly designed by architects, the products can be placed as per the guidelines. But what takes time, for all local luxury segments, is to get the mentality and quality of staff. Not only education makes the difference, but mainly ‘bonnes manieres’, real care for customers and general attitude and behavior, from the owners and top management to the front line, the sales people.”

corina.dumitrescu@business-review.ro