Size isn t everything: Turkey s fast-growing luxury market

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A tally of the world’s biggest and most dynamic markets for luxury goods

would invariably include countries like China, the U.S., Brazil, Russia, India,

France, Mexico and Japan. But what happens when you’re looking for

growth beyond the obvious suspects? Brands seeking global expansion must

continually mine new frontiers of growth, even if those markets will represent

a small portion of total sales.

Turkey is one such opportunity for above-market growth. This transcontinental nation of 76 million people constitutes just a small slice of global luxury (roughly 1 percent of total sales, according to Euromonitor), but is among the fastest growing markets for luxury goods in the world. Between 2008 and 2012, luxury sales in Turkey jumped by 37 percent. Last year, they

surged 12 percent from the previous year, to an estimated $3 billion.1 By 2018, the market is

expected to reach $5.4 billion. Such growth exceeds that of Turkey’s underlying economy, which over the past decade has been strong and steady. And despite some lingering effects from the recent political and financial shocks, the economy is still expected to grow mildly in 2014. Even amid the current slowdown, there are two main reasons to believe that luxury spending in Turkey will continue to advance at a robust pace (Exhibit 1 and 2).

1) A consumer economy

Across the country, the fabric of Turkish society is changing, with the long-term trend of rising disposable incomes and increased living standards underway. Between 2013 and 2017, the

country’s total personal disposable income is expected to rise from $652 billion to $906 billion.2

Of particular note are Turkey’s baby boomers, who have reached the age of consumption and production, driving growth in the middle class. By 2016, 23 percent of Turkish households will 1 Euromonitor

Size isn’t everything:

Turkey’s fast-growing luxury market

Consumer and Shopper Insights September 2014

Authored by: Reena Gehaney Ilke Bigan


have annual incomes of $50,000 or more, up from 17 percent in 2011.3 As a population,

Turks are becoming increasingly educated and urbanized. They are also young: Roughly 60 percent of citizens are under the age of 35, with many in this new generation savvy consumers of technology. These shifts have bred a change in the financial profile of Turkish consumers, to the point where significant numbers of them are now able to afford luxury goods. There is also an adjustment of attitudes, and many of those for whom premium goods are out of reach nonetheless aspire to lusher lifestyles (Exhibit 3).

2) A tourist destination

A key component of Turkey’s luxury market, an indeed its entire economy, is its positioning as a tourist destination. Turkey was the 6th most visited country in the world in 2013, attracting 38

million tourists, ahead of Germany, the UK, Russia and Thailand.4 The country holds appeal

for budget travelers and high income tourists alike. It is the wealthier travelers, however, who are coming to Turkey in increasing numbers, drawn to Istanbul, Antalya and other cities where 3 Turkstat, EIU


SOURCE: Euromonitor Reports (Luxury goods market in Turkey – June 2013, Global luxury goods market – May 2013)

5,591 5,219 4,875 4,463 4,150 3,899 3,606 3,340 +8% p.a. +8% p.a. 20151 20141 20131 2012 2011 2010 2009 2008

Luxury goods market in Turkey – Value sales

(in million Turkish Lira)

49% 31% 8% 4% 4% 2% 1% 1% 0% Luxury goods

sales by category

(percentage share)

Note: Designer Apparels; Luxury Jewellery and Timepieces; Luxury Accessories; Super Premium Beauty and Personal Care; Fine Wines/Champagne and Spirits; Luxury Electronic Gadgets; Luxury Travel Goods; Luxury Writing Instruments and Stationery; Luxury Cigars – mentioned in the decreasing order of their overall share in the luxury goods market in Turkey (2012, value sales)

1 Forecasted numbers Exhibit 1:

Euromonitor: Luxury product market in Turkey has grown at 8% CAGR in last 4 years with apparels accounting for almost 50% of the value sales

Real GDP growth

Percent Interest rates Percent

5.0 5.1 5.2 5.1 3.8 2013 14 15 2016 2017

Annual Inflation (CPI)

Percent Personal disposable income $ bn

SOURCE: Central Bank, State Institute of Statistics, EIU Population

Million GDP per capita (with PPP adjustment) US$ thousand 4.1 4.6 5.4 6.3 6.6 16 15 14 2013 2017 79.3 78.5 77.6 76.7 75.8 15 14 2013 16 2017 6.0 6.3 6.0 5.7 5.2 2016 15 14 2013 2017 906.2 827.0 752.8 693.1 652.1 16 15 14 2013 2017 16.4 14.9 13.5 12.5 11.8 16 15 14 2013 2017 Exhibit 2:


there is an expanding number of high-end malls and premium hotels. These well-heeled

travelers account for anywhere from 10 to 20 percent of Turkey’s total luxury market,5 with a

majority of them arriving from the Middle East, Russia and Central Asia. In 2012, purchases of luxury goods by foreigners grew by some 40 percent, thanks in part to an exodus of rich foreigners from “Arab Spring” countries like Tunisia, Egypt and Syria.

Further growth is expected. In the next three years, 65 new four and five star hotels are expected to be completed in Turkey, including a St. Regis and a Raffles Hotel with a helipad. Turkey now has more malls than any other European country except Spain and Russia. For many wealthy travelers to Turkey, shopping forms the backbone of their journey. To attract these jet set consumers, Istanbul and Antalya both hold lengthy shopping festivals in June. The market for luxury housing is also booming, due in part to the abolishment of a law that restricted foreign investment in property. Many wealthy Europeans and Middle Easterners are not only shopping for high-end goods in Turkey, but also buying luxury homes. Who are Turkey’s premium consumers?

Among Turks, the consumption of luxury goods does not follow standard patterns. In many markets, the upper strata of elite consumers represent a key target for luxury purchases. In Turkey, however, most of the country’s high net worth individuals (those with assets of at

least $1 million, household income of $500K, and comprising 0.13 percent of the population)6

do nearly all of their buying of high-end apparel, accessories and jewelry on their many trips overseas. The primary reason for this is price. The cost of luxury goods in Istanbul can be as much as 20 percent higher than those in Milan or Paris. The good news for brands seeking a bigger footprint in Turkey is that these wealthy Turks are well-versed in luxury – they know what they want and would be amenable to buying domestically if the circumstances were right. The real growth generator for the country’s luxury market is the Turkish upper middle class. Turks earning between $75K and $500K a year, most of them entrepreneurs, top executives and public figures, account for roughly half of luxury sales across all sectors in Turkey. One of these middle class segments – what we identify as the “emergents” – range in age from mid-30s to 40s and have household income of $250K to $500K. Their primary reason for buying luxury goods is to show them off socially as a status symbol. Another group of middle

5 CPP Luxury

Breakdown of households by income category

(in percentage, income – USD per annum, number of households – in million)

9 11 8 More than 75,000 50,000-75,000 35,000-50,000 25,000-35,000 15,000-25,000 10,000-15,000 less than 10,000 20151 10 16 18 24 13 8 20131 100% 8 14 17 25 15 12 2011 6 12 16 26 16 15 2009 4 5 9 14 27 19 23 16.45 16.97 17.52 18.08

SOURCE: EIU World Data, Euromonitor Reports (Luxury goods market in Turkey – June 2013), Web Search 1 Forecasted numbers

Sales of Luxury goods will benefit from an increasing affluent high-income group and an increasing asp-irational mid-income group, with consu-mers in the latter inc-reasingly opting to treat themselves to an occasional afford-able luxury product

– Euromonitor, Jun 2013

Exhibit 3:

Number of Turkish upper-middle to high income households are increasing, along with their ability to embrace a luxurious lifestyle


class consumers, the “new entrants,” earn between $75K and $250K.7 Educated and urban,

these consumers are professionals in their late 20s or 30s. Although affording luxury goods is sometimes a stretch for these consumers, they aspire to and often purchase high-end goods as a personal reward for their labors. Affordable luxury brands, such Tory Burch and Michael Kors, have particular appeal for these consumers.

An insight into the aspiration Turks have for luxury can be gleaned from cars sales. While hefty taxes and high fuel prices make car ownership unattractive in Turkey (just one in four Turks owned one in 2012), the market for luxury automobiles is booming. Sales of high-end cars are increasing at a rate double that of the total passenger car market. For many, the appeal of owning a Mercedes-Benz, BMW or Audi exceeds the outlay of money necessary to acquire it. During the first five months of 2013, the number of luxury vehicles sold in Turkey

was 21,837, compared to 15,870 during the same period the previous year.8

Where premium consumers live and how they shop

Targeting potential purchasers of luxury goods starts with understanding Turkey’s

population patterns. Between 60 and 80 percent of Turkey’s luxury market is concentrated in the capital city of Istanbul, where lifestyles reflect the influence of European culture. Over the past decade, international luxury houses and high-street brands have flocked to Istanbul in droves — not only to the historic and upscale Niantai district, but also to newer retail hubs popping up around the sprawling city, like Istinye Park, Kanyon Mall and Zorlu Centre. The rest of the market is found in seven other cities that dot the western half of the country. These cities – Ankara, Izmir, Bursa, Konya, Antalya, Mersin and Kayseri – are home to four-fifths of the households with annual incomes greater than $75,000. As more middle class consumers and a newly wealthy, entrepreneurial elite emerge across the country, a greater share of luxury spending will happen outside of Istanbul. In the premium beauty sector, for instance, the cities with the fastest growth between now and 2025 will be Gaziantep and

Konya, with a CAGR of 10 percent and 9.5 percent respectively, versus Istanbul’s 8.2 percent.9

In contrast to these Western cities, the eastern half of Turkey is agricultural, sparsely populated and poor. Necessities such as food, housing and transportation constitute the major portion of household spending. As such, these areas hold little appeal for luxury brands at the moment (Exhibit 4 and 5).

Just as there are important population patterns at play, so too is it important to understand the distinct media habits of Turkish consumers. The majority of Turkish luxury consumers, both men and women, are most heavily influenced toward a specific branded luxury product not because they’ve seen them advertised in fashion glossy magazines, but in response to what they’ve seen in one of Turkey’s many tabloid newspapers. When local VIPs or celebrities are spotted and photographed wearing or owning a particular product, Turkish consumers are likely to view the item as a trendy status symbol. Both tabloid newspapers and tabloid style TV shows (all national TV stations have at least one daily tabloid show) are very popular in Turkey, attracting huge audiences.

Television can also be an important factor when trying to reach luxury consumers, particularly those in the “new entrant” category. For this group, viewing is concentrated in the evening, with 9 p.m. to midnight the most watched hours during both weekdays and weekends. Both new entrants and emergents spend a good deal of time on social media sites like Facebook and Instagram, and listen to popular radio channels like Power FM and Virgin FM during their work commute.

7 Team analysis, Euromonitor

8 Local experts, Automotive Distributers Association 9 McKinsey’s LuxuryScope database


Yet, while social media has some degree of influence over brand impressions, it is nowhere near as influential as more traditional media like tabloids and TV. And when it comes to sales of luxury goods, Turkey has yet to go digital, reflecting an overall trend of low internet penetration. With 38 percent broadband internet penetration, consumers in Turkey still make

almost all of their purchases in brick-and-mortar stores.10 In 2012, 94 percent of all luxury

goods sold in Turkey were bought in a store, and the figure hasn’t moved much since then. One reason for this is the desire consumers have to inspect the quality of goods. Others factors include the fact that Turkish luxury consumers like to seek advice on their purchases and are wary of Internet transactions. However, there are signs that younger aspirational and new entrant consumers are going online in search of discounts. In August 2013, one luxury goods site reported that Turkey ranked fifth in terms of number of Internet visitors (Exhibit 6).

SOURCE: MGI CityScope 2.0 (Mckinsey proprietary database), : Wealth Insight Report (Turkey 2013 Wealth Briefing – Dec 2012)

High income households – By cities (in ‘000 and income in USD ‘000)

22 23 18 17 17 19 20 10 Kayseri 4 29 57 180 Mersin 2 17 61 186 Antalya 2 18 61 191 Konya 3 20 60 206 Bursa 3 21 60 412 Izmir 3 19 60 745 Ankara 2 15 59 976 Istanbul 2 16 60 2,844 >$70k $20k-$70k $7.5k-$20k <$7.5k 2 1 4 3 6 5 7 8 2 6 4 1 3 5 8 7

▪ 79% of households with income >$70k live in these 8 cities – Number of UHNWIs1 in Istanbul – 1,110; in Ankara – 200; Izmir –

50; Antalya – 40 and Bursa – 30

▪ 70% of households with income between $20k-$70k live in these 8 cities

Note: The data is for the year 2010

1 Ultra high net worth individuals with USD 30 million and above wealth

Exhibit 4:

Majority of the high income households reside in Western parts of Turkey, primarily in Istanbul, the home to country's riches

SOURCE: Euromonitor International from national statistical offices/OECD/Eurostat Consumer expenditure per household - 2010

(‘000 $US per households)

0 5 10 15 20 25 30 35 40 45 50

North-East Anatolia

Istanbul Aegean Mediterranean West Black Sea South-East Anatolia

Transport Housing

Leisure and entertainment Hotels and Catering Others

Food and Non-Alcoholic Beverages

Note: ‘Others’ includes consumer expenditure on alcoholic beverages and tobacco, clothing and footwear, household goods and services, health goods and medical services, communications, education, miscellaneous goods and services.

Exhibit 5:

Necessities constitute major portion of spending basket in East, while share of luxury and entertainment rises when ones moves to the West


Key marketing strategies for luxury brands

There are several execution considerations to keep in mind when trying to enter or expand within the Turkish luxury market. These include:

ƒ Place particular emphasis on real estate selection. Securing the right retail space

tops the list of challenges luxury brands face in Turkey. Except for shopping malls, of which there is no shortage, many of the real estate opportunities in urban locations are retail conversions from residential and lack the standards necessary for global luxury brands. Companies that wish to succeed in Turkey will need to find the right mono-brand locations not just in Istanbul, but ultimately in cities beyond the capital, like Ankara and Antalya.

ƒ Create and leverage relationships with brand ambassadors. Getting noticeable

personalities to wear and/or endorse your products dramatically enhances their status in the eyes of Turkish consumers. Yet they need not be typical entertainment industry celebrities. The luxury phone manufacturer Vertu, for instance, used the CEO of a telecom company to promote its brand to young premium consumers.

ƒ Offer a diverse product selection. Since most of the consumers buying luxury

goods within Turkey are those who have acquired their wealth relatively recently, they are still somewhat price sensitive. This is evidenced, for instance, by the department store Beymen, which organizes ‘Butterfly Days’ on the last day of each month, offering selected items at half price and arranging special campaigns for their bankcard holders. Luxury brands should manage their product assortment in a way that both ensures affordability and creates the necessary aspirational brand image.

ƒ Attract digital consumers. There is much growth ahead in the use of digital and mobile

technologies in Turkey. Brands that wish to capitalize on the burgeoning digital adoption among young luxury consumers should engage with them on their multichannel journey and take steps to allow them to easily share both their online browsing activities and in-store try-ons with their friends. One way to do this might be through the installation of interactive mirrors in dressing rooms, where shoppers can try on clothes and share photos on Facebook and other sites.

ƒ Do product placement. Two types of places ideal for product demos and displays are

nightclubs and fitness clubs, both of which are frequented by affluent Turks. Nightlife SOURCE: TV watching tendencies, 2011_Radio and Television High Council, Local Experts, Expert Interview

<1000 1001-2000 2001-3000 3001-4000 4001-5000 >5000

Local TV Series 76.3 79 75.1 67.7 81.8 52.4

News 73.5 73.7 78 73.5 78.6 78.6

Old Turkish Movies 52.8 51.7 41.1 41.8 37.5 41.5

Game Shows 40.4 41.4 49.2 42.1 33.3 47.6 Foreign Movies 33.8 40.3 43.8 46.9 48.2 45.2 Documentaries 36.4 37 41.4 45.4 42.1 40.5 Sports Programs 27.8 38.4 42.5 42.9 47.4 513 Religious Programs 40.8 29 22 17 27.3 15 Discussion Programs 24.9 29.9 40.6 37.8 42.9 52.4 Magazine Programs 18.3 22 22.2 9.4 26.8 22

Types of TV programs watched by income1 brackets (% of people)

Most preferred TV channels

Majority of the channels are general channels and have different category of shows like news, talk shows, quiz, local serials etc.

1 Monthly income in TL Exhibit 6:

News, local TV series, discussions and sports are some of the most watched categories of programs by high income consumers


culture in Turkey is very prevalent and many consumers are quite conscious about their health. Tasteful and well-executed product placements can help boost the visibility of a brand.

* * *

There is little doubt that luxury consumption is increasing in Turkey. One only need look at the number of high-end stores, restaurants and hotels that are opening. And irrespective of the country’s changing economic conditions, the luxury market will continue to show signs of growth, as the upper segment of the population is likely to feel minimal impact from a downturn. Luxury, after all, is an industry that can expand even during a crisis. Brands seeking a new market or looking for a broad expansion of their business would be well served to examine the fast pace of Turkey’s consumers and their love for luxury.

Reena Gehaney is a senior research analyst in the McKinsey Knowledge Center and Ilke





Related subjects : Luxury Market