Due Diligence: The expansion of luxury brands in Emerging Markets

Due Diligence: The expansion of luxury brands in Emerging Markets

Global expansion of many luxury brands has been surprisingly resilient to shocks in recent years. Much of this has been driven by their growth in emerging economies; Africa, Asia and the Middle East, where purchasing power and appetite is increasing and fuelling growth. However, as many of these brands become famous outside their infrastructure, they can rely on third parties that can do their brands a disservice.

The shift in demand, which was previously concentrated in the western hemisphere, is now making its mark in the global south. China has emerged as a critical player in the luxury goods market, with other countries like India, Malaysia, and Central Asian states following suit.

We have seen fast acceleration of some brands internationally, with a real focus on emerging markets. For example, jewellery brand Messika has had dramatic growth and in 75 countries. Aside from conventional markets such as Europe, the UK and the USA, you can now find Messika products in both Madagascar and Kazakhstan, the latter is where it opened one of its first monobrand stores. The same is true for Cartier, whose brands are in jewellery stores from Chile to Vietnam.

A huge amount of money is going into expanding in these emerging markets. Messika recently hosted an enormous event in Kazakhstan led by representatives out of Dubai. It has a full monobrand store in Kazakhstan, alongside Premier Group’s operations. Premier Group is also opening the Messika store in Uzbekistan in the new Tashkent City Mall. Other brands such as Panerai and Patek Philipe will also be present to service the growing middle class in Central Asia.

However, in the rush to expand, are these brands falling victim to their own success? While the brands themselves operate serious standards of compliance and supply chain management, ensuring thorough due diligence through the process. In emerging economies, particularly run out of opaque third-party centres lit is hard to oversee the business practices used by partners who are in a rush to capitalise from the brand names.

So how can these companies protect their brands? Due diligence in the supply chain is vital, but it should also be carried out with forward looking partners and retailers. Licensing agreements in and through tax havens should be scrutinised, and multiple partners should be considered, making transparency a key KPI. Monopoly resellers should be broken as this could lead to complacency on the part of both the seller and the brand, with malpractice overlooked.

As they expand, brands must do more to protect their reputation in these emerging markets they are quick to sell to. The pursuit of rapid growth is tempting for many and has proven lucrative. However, to protect a reputation as world leading suppliers of jewellery, brands must look forward to. Unwittingly, their name is being used for someone else’s gain, and it may cost them in the future.