In its Global Powers of Luxury Goods 2014 report, the firm identifies these four regions as among the more promising markets for luxury goods, on the back of strong economic growth, favourable demographics, and fast rising numbers of upper income households. If the thought of setting up watertight distribution networks, negotiating local competition law, and keeping track of IP rights in these legally challenging regions gives you the chills, better news may be that there is also a swing back to the traditional regions in the luxury market.  Companies such as Tiffany have hinted at a revised focus on Europe, while global management firm Boston Consulting Group highlights the United States as the biggest growth opportunity.

No longer outperforming 

The developed countries are still where more than half of luxury’s total global sales are made.  The Economist  puts the number of luxury consumers at 330 million, of which it counts a minority 130 million in emerging markets. But overall the luxury market is slowing - set to grow by four to six per cent this year, after a 6.5 per cent growth in 2013, according to management consultancy Bain.  This means that luxury is no longer outperforming the market, which is focusing minds and changing the ways of doing business.  

“We will see less outlicensing,” predicts Louise Nash, partner at Covington & Burling.  “Ten years ago everybody was frantically outsourcing and outlicensing to generate greater revenues.  Fashion brands were going into areas like eyewear, cosmetics, hotels, flowers, becoming lifestyle brands.  Now more brands are looking at exiting licensing arrangements and building up in-house.  Brands see that rather than just a revenue stream, they may make more money if they handle it themselves.”  

One example of this is the Kering Group which ended early its licence with Safilo for Gucci eyewear brands, in what it said was a strategic move to establish in house eyewear expertise, and control the brand through the chain from design through to sales.  “Previously all brands have outsourced to the big boys, so for Kering to say it its taking it back in house is a sea change. I think we are going to see more of that,” says Ms Nash.

Burberry has also pulled out of licensing with Interparfums, the French company that developed and sold its perfume and cosmetics products.  At the same time it has taken a bold move against counterfeiting.  “It’s clever because they are killing two birds with one stone.  They have taken it in-house, and also signed an exclusive distribution deal with Amazon.  By having an agreement with Amazon they will get more revenue from direct sales, and they have brought Amazon inside the tent and given them a vested interest in combatting counterfeit,” Ms Nash added.

Counterfeiting is a top concern

Counterfeiting remains top of the list of concerns among the brand owners we spoke to, and Ms Nash predicts that we will see more arrangements between brands and online retailers. “The way Burberry is approaching anti-counterfeiting could change the need for legal services for standard anti-counterfeiting measures.  Making the distribution network police itself is interesting,” she said. 

Trade mark protection may create less of a workload with more focus on the established markets, where brand owners feel the climate is slowly moving in their favour, especially in France as one told us:  “France is leading the way in being on the side of trade mark owners and trying to protect them from abuse from other parties. That is because the French government recognises the value of luxury goods brands to the French economy.”  

Nightmares

But the shift to the regions Deloitte has identified, which are more commonly associated with lawlessness, is the stuff of nightmares to come for luxury lawyers.  Brand owners identified reputational risk, especially environmental and ethical, as of key concern in the coming year. And this is most difficult to police in emerging markets.  “You can have all the contracts in place but standards are not the same in some other countries.  What worries me most is provenance, can we prove where the goods are from, can we rely on everyone in the production chain to have complied.  There haven’t been scandals involving luxury goods, but it’s something of a time bomb,” one brand owner said.