Size isn't everything: Turkey's fast-growing luxury market
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Size isn’t everything:
Turkey’s fast-growing luxury market
Consumer and Shopper Insights September 2014
Authored by: A tally of the world’s biggest and most dynamic markets for luxury goods
Reena Gehaney would invariably include countries like China, the U.S., Brazil, Russia, India,
Ilke Bigan
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
2 Central Bank, State Institute of Statistics, EIUExhibit 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
Luxury goods market in Turkey – Value sales
(in million Turkish Lira)
+8% p.a.
+8% p.a. 5,219 5,591
4,875
4,150 4,463
3,606 3,899
3,340
2008 2009 2010 2011 2012 20131 20141 20151
Luxury goods
sales by category
(percentage share) 49% 31% 8% 4% 4% 2% 1% 1% 0%
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
SOURCE: Euromonitor Reports (Luxury goods market in Turkey – June 2013, Global luxury goods market – May 2013)
Exhibit 2:
Turkey’s growth is expected to accelerate back in the following years
Real GDP growth Interest rates
Percent Percent
5.1 5.2 5.1 5.0 5.7 6.0 6.3 6.0
3.8 5.2
2013 14 15 2016 2017 2013 14 15 2016 2017
Annual Inflation (CPI) Personal disposable income
Percent $ bn
6.6 6.3 827.0 906.2
5.4 4.6 652.1 693.1 752.8
4.1
2013 14 15 16 2017 2013 14 15 16 2017
Population GDP per capita (with PPP adjustment)
Million US$ thousand
75.8 76.7 77.6 78.5 79.3 14.9 16.4
11.8 12.5 13.5
2013 14 15 16 2017 2013 14 15 16 2017
SOURCE: Central Bank, State Institute of Statistics, EIU
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
4 UNWTO
2Exhibit 3:
Number of Turkish upper-middle to high income households are increasing, along with their ability
to embrace a luxurious lifestyle
Breakdown of households by income category
(in percentage, income – USD per annum, number of households – in million)
16.45 16.97 17.52 18.08 Sales of Luxury
100%
12 8 goods will benefit
15 from an increasing
less than 10,000 23
13 affluent high-
15
16 income group and
10,000-15,000 19 24 an increasing asp-
25 irational mid-income
26 group, with consu-
15,000-25,000 27 18 mers in the latter inc-
17 reasingly opting to
25,000-35,000 16 treat themselves to
16 an occasional afford-
35,000-50,000 14 14
12 able luxury product
50,000-75,000 9 11 – Euromonitor,
8 9
More than 75,000 5 8 10 Jun 2013
4 6
2009 2011 20131 20151
1 Forecasted numbers
SOURCE: EIU World Data, Euromonitor Reports (Luxury goods market in Turkey – June 2013), Web Search
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
6 Wealth Insight
3class 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
4Exhibit 4:
Majority of the high income households reside in Western parts of Turkey, primarily in Istanbul, the
home to country's riches
High income households – By cities $70k
1 Istanbul 2 16 60 22 2,844
1
2 Ankara 2 15 59 23 976
4
2
3 Izmir 3 19 60 18 745
8
3 4 Bursa 3 21 60 17 412
5
5 Konya 3 20 60 17 206
6
7
6 Antalya 2 18 61 19 191
▪ 79% of households with income >$70k live in these 8 cities
– Number of UHNWIs1 in Istanbul – 1,110; in Ankara – 200; Izmir – 7 Mersin 2 17 61 20 186
50; Antalya – 40 and Bursa – 30
▪ 70% of households with income between $20k-$70k live in these 8 8 Kayseri 4 29 57 10 180
cities
Note: The data is for the year 2010
1 Ultra high net worth individuals with USD 30 million and above wealth
SOURCE: MGI CityScope 2.0 (Mckinsey proprietary database), : Wealth Insight Report (Turkey 2013 Wealth Briefing – Dec 2012)
Exhibit 5:
Necessities constitute major portion of spending basket in East, while share of luxury and
entertainment rises when ones moves to the West
Consumer expenditure per household - 2010
(‘000 $US per households)
Food and Non-Alcoholic Beverages
South-East Anatolia
Housing
West Black Sea Transport
Leisure and entertainment
North-East Anatolia Hotels and Catering
Others
Aegean
Mediterranean
Istanbul
0 5 10 15 20 25 30 35 40 45 50
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.
SOURCE: Euromonitor International from national statistical offices/OECD/Eurostat
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).
10 Pyramid Research Q4 2012, Turkstat
5Exhibit 6:
News, local TV series, discussions and sports are some of the most watched categories of
programs by high income consumers
Types of TV programs watched by income1 brackets (% of people)
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 24.9 29.9 40.6 37.8 42.9 52.4
Programs
Magazine Programs 18.3 22 22.2 9.4 26.8 22
Majority of the channels are general
Most preferred channels and have different
TV channels category of shows like news, talk
shows, quiz, local serials etc.
1 Monthly income in TL
SOURCE: TV watching tendencies, 2011_Radio and Television High Council, Local Experts, Expert Interview
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:
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.
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.
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.
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.
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
6culture 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.
http://csi.mckinsey.com
Reena Gehaney is a senior research analyst in the McKinsey Knowledge Center and Ilke
Bigan is a principal in Istanbul.
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