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HSBC: Young Urban Males Will Be Key to Luxury Market Growth

Despite lagging demand for luxury goods of late, things are looking up, and we owe that all to the Yummy.

According to an HSBC Global Research report released this month titled, “Rise of the Yummy. Young, Urban, Male: three reasons to rejoice,” young urban males, or Yummies, will drive luxury demand growth this year, and in years to come thanks to a “metro-sexual shift” in men’s shopping habits.

The idea of the “metro-sexual”–a term coined twenty years ago to describe a man who is interested in his appearance and spends time, effort and money shopping–is now becoming a commercial reality, HSBC notes in the report.

Japan initially led the “metro-sexual” trend, with Korea following close behind, but the shift didn’t translate into much growth in male-made purchases as “metro-sexuals” weren’t mainstream.

But, as HSBC notes, “This has clearly now changed. Whether it is cosmetics, outdoor sports, fashion or accessories, male purchases have really started to impact overall growth rates.”

As a result, many luxury brands are responding with men-specific stores and investing in product diversification for males.

Burberry, for example, is developing “Travel Tailoring” for active men, a line of suiting with “motion-canvas” construction enabling better elasticity and less creasing when wearing or taking a suit on the road. Hugo Boss has also launched a crease-resistant, breathable travel line, and Tod’s has launched “Sartorial Touch,” a collection of made-to-order shoes, bags and luggage, and the concept has been marketed as an exclusive Men’s Club of sorts, only available to choice customers.

The trend toward male-dominated luxury purchases is expected to be a global phenomenon, according to HSBC, but China is the only place where women will dominate the spend.

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According to a Bain report, men made 90 percent of luxury purchases in China in 1995, but now, women account for half of luxury goods spending, a shift attributed to women’s increased financial independence.

In conjunction with the “metro-sexual shift,” luxury consumers are also getting much younger.

HSBC’s says this is due to psychological and social trends driving consumers to prefer displaying social status sooner, and as a result of endless online resources and more affordable travel, making brand information more accessible to target audiences.

In particular, the report notes, Asian shoppers “who are now the ones significantly moving the needle for luxury, are younger than their Western counterparts. Youth is a positive as consumers want to display social status early on, but fast-changing expectations and fashion trends put pressure on the mainstream brands.”

Brands will have to be nimble to retain loyalty from the young, often fickle, shopper whose preferences change with the trends.

“The ability to respond to the desire for ‘newness’ is one reason that Zara-type business models — such as the ‘flash collection’ approach developed by Prada — offer better protection than traditional business models in soft luxury,” the report notes.

Prada launched its “flash collections” in 2012, which involved updating product monthly to keep offerings fresh, enabling the brand to respond quickly to changing trends.

And in an increasingly plugged-in world, luxury brands can’t afford to ignore digitalization.

Burberry has so far been at the forefront of satisfying this trend–which is key to keeping the young consumer–with its online streaming of runway shows and in-store online experiences. “The digital focus truly sets Burberry apart in terms of product and service, which helps to boost the brand awareness, especially in Asia,” according to HSBC.

Burberry is HSBC’s top pick of preferred stocks because of its “digital supremacy,” followed by Swiss-based luxury goods holding company Richemont and Italian eyewear maker Luxottica, owner of Ray-Ban.

HSBC’s report also points to more emerging markets appearing on the luxury map and wealth creation simultaneously creating new luxury targets for brands. And, according to the report, the market has been too pessimistic about China for 2014.

“While it may sound counter-intuitive given the macro economic news, individual interviews give us the sense that, after three years of hiding (from the economic environment in 2011 and 2012, and from the anti-corruption rhetoric since September 2012), the high-end Chinese consumer is ready to make a few purchases again.”

And beyond China, emerging markets are seeing better GDP growth and urbanization.

“As a consequence of urbanisation and rising incomes, the swelling middle class will quickly become more sophisticated which will lead to changes in their consumption tastes. This phenomenon will benefit luxury brands as they are often used as a way of displaying social status.”

HSBC forecasts the luxury industry to achieve organic sales growth rates of 9 percent in both 2014 and 2015 (broadly in line with 2013), and predicts that: wholesale drag will wane, China mainland growth will pick up to 14 percent (up from 11 percent in 2013), and that growth in other regions will slow slightly, with tourist flows normalizing in Europe and U.S. trends moderating following a few years of robust growth.