Wealth X - Global Luxury Outlook 2020 by Spring Lee

APPLIED WEALTH INTELLIGENCE

GLOBAL LUXURY OUTLOOK 2020: A WORLD OF CHANGING PREFERENCES

RICHARD GREEN CHIEF EXECUTIVE OFFICER MANUEL BIANCHI MANAGING DIRECTOR AND GLOBAL HEAD OF BUSINESS DEVELOPMENT MICHAEL PHILLIPS VICE PRESIDENT, MARKETING AND COMMUNICATIONS LEAD AUTHORS MAYA IMBERG SENIOR DIRECTOR, THOUGHT LEADERSHIP AND DATA ANALYTICS MAEEN SHABAN DIRECTOR, RESEARCH AND DATA ANALYTICS STEPHANIE WARBURTON SENIOR GRAPHIC DESIGNER

© WEALTH-X AUGUST 2020, A PART OF THE EUROMONEY INSTITUTIONAL INVESTOR PLC GROUP. ALL RIGHTS RESERVED. THIS PUBLICATION IS FOR YOUR INFORMATION ONLY AND IS NOT INTENDED AS AN OFFER, OR A SOLICITATION OF AN OFFER, TO BUY OR SELL ANY PRODUCT OR OTHER SPECIFIC SERVICE. ALL INFORMATION AND OPINIONS INDICATED ARE SUBJECT TO CHANGE WITHOUT NOTICE.

TABLE OF CONTENTS Executive Summary 1 Introduction 2 Interwoven: Wealth and Luxury Market Growth 3 The Global Luxury City Index 7 Affinity for Luxury – City Ranking 10 Affinity for luxury – UHNW Profiles 13 Archetypes by Luxury Good Ownership 16 Changing Luxury Preferences 19 Methodology 21 About Wealth-X 22

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EXECUTIVE SUMMARY 1

THE GROWTH OF WEALTH AND THE GLOBAL LUXURY MARKET ARE INTERTWINED.

In the 15 years running up to 2020, the world’s wealthy population grew in size almost continuously. As wealth grew, so too did the world of luxury. The coronavirus pandemic, however, has brought years of industry growth to a halt. Still, many among the wealthy – particularly the ultra wealthy – have continued to spend on luxury during 2020, albeit in a different way.

ASIA DOMINATES THE TOP 15 RANKING WITH EIGHT CITIES. At the regional level, Asia accounts for eight cities, followed by North America (with five cities, all of them in the US). The luxury sector has grown enormously over the past two decades across Asia, with cities in China, Japan, Korea, Singapore and Taiwan among the top 15. The US remains the country with the highest number of cities attractive for luxury.

UHNW OWNERS OF PRIVATE JETS, YACHTS OR ART COLLECTIONS ARE DIFFERENT FROM ONE ANOTHER. Private jet owners tend to be male, less wealthy and comparatively younger than the other two cohorts on account of many being in the business-building stage of their lives. Private yacht owners show the highest average net worth, while most art collectors are over 70 and show a much higher representation of women, at 22%.

NEW YORK LEADS OUR GLOBAL LUXURY CITY INDEX, FOLLOWED BY TOKYO AND HONG KONG. Our index draws out the top 15 cities where wealth and luxury meet. Boasting more wealthy individuals than any other location in the world, the Big Apple is truly the city of the rich – it also performs strongly in the index for its luxury retail footprint and luxury lifestyle opportunities.

AGE, GENDER AND WEALTH SOURCE MATTER WHEN IT COMES TO INDIVIDUALS’ AFFINITY FOR LUXURY. The level of propensity to own luxury assets changes according to different characteristics of the ultra high net worth (UHNW) population. At a high level of affinity, UHNW women show a slightly greater propensity than men, as do those who have inherited their wealth compared with the self-made. The difference is particularly marked for people aged 50 to 70.

THE PANDEMIC IS CHANGING THE LUXURY HABITS OF THE WEALTHY. The growth of online shopping and delivery, enabling luxury services to be provided in the privacy of the wealthy’s homes, will continue, while intangible assets – namely additional passports and on-demand healthcare – will remain a priority. To prosper in such times, luxury brands must be flexible, quick moving and as attentive as ever to the changing demands of their clientele.

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INTRODUCTION Over the past decade, Wealth-X has published reports on a variety of luxury assets, ranging from yachts and private jets to high-end real estate. In Wealth-X's new Global Luxury Outlook 2020: A World of Changing Preferences, we take a holistic view of the world of luxury, seeing it as its own category that includes luxury goods and lifestyle services, fine art, private jets, yachts, cars, travel, real estate and other assets. This report sheds light on how wealthy individuals approach luxury in their lives and how this is changing – and we examine the many differences among the wealthy that exist under these two themes. While we define a ‘wealthy’ individual as someone who has at least $1m in net worth, our analysis is mostly shown across the two tiers of wealth within our primary focus: VHNW ($5m to $30m) and UHNW ($30m and above). This report also occasionally delineates among the UHNW tier, which is significant when considering the ownership of large-ticket items such as private jets and yachts. We first explore the interlocked relationship between wealth growth and the development of the luxury goods and services industry. No discussion can be complete, however, without touching on how the Covid-19 pandemic has brought much of the luxury industry to a standstill and how it will continue to have a profound effect. From customer relationship management to marketing strategies and personalized solutions, data is becoming increasingly important to luxury brands around the world. We provide insight on the wealthy, not only at a country and city level but also at the cohort and product level, which demonstrates the value of understanding the intricacies of your specific market metrics. Our Global Luxury City Index benchmarks cities on specific criteria to find the world’s top 15 cities where wealth, luxury retail and a luxury lifestyle are most deeply entwined. We then dig a little deeper, analyzing the wealthy population’s affinity for luxury, gaining an insight into how the level of propensity to own luxury assets varies among cities and according to certain key characteristics such as wealth source, gender and age. Via a study of archetypes, we also find that there are characteristic differences between the ultra wealthy individuals who purchase private jets, those who buy yachts and those who collect fine art. Finally, we take a look at how the wealthy’s luxury preferences are changing in these extraordinary times. Wealth-X’s Global Luxury Outlook 2020: A World of Changing Preferences provides exclusive insights on the intersection between luxury and wealth, making it an essential read for any provider looking to prospect for, target and engage with the wealthy.

KEY DEFINITIONS Very high net worth (VHNW) individuals Those with a net worth of $5m-$30m Ultra high net worth (UHNW) individuals Those with a net worth of $30m+ (also referred to as the ‘ultra wealthy’)

ACKNOWLEDGMENTS We would like to thank the following individuals (listed alphabetically) for their valuable contributions to our research, adding both texture and deeper insight: Alistair Brown | CEO, Alistair Brown International Real Estate Winston Chesterfield | Principal, Barton Jaclyn Sienna India | CEO, Sienna Charles

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INTERWOVEN: WEALTH AND LUXURY MARKET GROWTH In the 15 years running up to 2020, the world’s wealthy population grew in size almost continuously. The number of global millionaires (those with $1m+ in net worth) doubled over the 2005-2019 period to more than 25 million individuals. This increase was propelled by strong economic growth in Asia and other emerging economies, continued urbanization, transformative advances in digitization (led by the US tech giants) and, perhaps most of all, by a period of unprecedented liquidity from global central banks. As wealth grew, so too did the world of luxury. The global luxury market has undergone dramatic change, not only in size – expanding from an estimated €147bn in 2005 to €1.3trn in 20191 – but also in the breadth of services now offered by a more diverse range of providers, both large and small. Historically the preserve of the VHNW and those with even greater wealth, luxury products and amenities have become far more ubiquitous.

INTERLOCKED: WEALTH AND GLOBAL LUXURY SPEND Global luxury market (€bn)

Number of individuals with a net worth of $1m+ 30,000,000

1,400 THE GROWTH OF THE GLOBAL LUXURY MARKET IS HEAVILY TIED TO GROWTH IN WEALTH

1,200

25,000,000

1,000

20,000,000

800 15,000,000

600

10,000,000

400

5,000,000

200 0 2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

Note: Luxury market spend figures are based on estimates. Sources: Wealth-X; Bain & Company

1 Source: Bain & Company (includes personal luxury goods, luxury cars, luxury hospitality, fine wines and spirits, gourmet food and fine dining, high-end furniture and housewares, fine art, private jets, yachts and luxury cruises).

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The huge expansion of the luxury sector in China and other emerging markets over the past decade shows the inextricable relationship between the demand for luxury items and the trajectory of wealth. In fact, the Asia region is now home to more wealthy individuals than Europe, though North America (led by the US) still remains the dominant region for global wealth, accounting for almost 40% of all VHNW and UHNW individuals. Moreover, although the luxury market in China and other parts of Asia has enjoyed robust growth, Europe and North America are still very much the leading global centers of luxury consumption, accounting for a dominant share. In part, this reflects strong growth in spending by Chinese consumers abroad across all of the world’s major luxury goods markets over the past decade.

WEALTH TIER

WORLD

VHNW $5m-$30m

UHNW $30m+

2,668,240

291,470

A SNAPSHOT OF THE WEALTHY AROUND THE WORLD NUMBER OF INDIVIDUALS BY WEALTH TIER 2019* EUROPE

NORTH AMERICA ASIA

78,700

678,370

MIDDLE EAST

105,130 1,045,580

83,260

723,790 LATIN AMERICA AND THE CARIBBEAN

73,680

AFRICA

9,770

PACIFIC

8,080

THE HUGE EXPANSION OF THE LUXURY SECTOR IN CHINA AND OTHER EMERGING MARKETS SHOWS THE INEXTRICABLE RELATIONSHIP BETWEEN THE DEMAND FOR LUXURY ITEMS AND THE TRAJECTORY OF WEALTH.

74,590

24,800

2,690

3,840

47,430

*Data is likely to undergo some revision following the publication of our World Ultra Wealth Report 2020. Note: Population numbers are rounded to the nearest 10. VHNW stands for very high net worth; UHNW stands for ultra high net worth. The size of the UHNW and VHNW circles are comparable to their own wealth tier, not to each other. Source: Wealth-X

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GROWTH HALTED BY COVID-19 The coronavirus pandemic, however, has brought years of industry growth to a halt. Buffeted by uncertainty and sudden declines across a range of wealth portfolios, not to mention the effects of national lockdowns and changing consumer behavior on the retail, travel and lifestyle markets, the vast majority of industry players are facing huge challenges to their businesses and the luxury sector is being transformed profoundly. Yet the global nature of these difficult conditions masks significant divergence among individuals. Many among the wealthy – particularly the ultra wealthy – have continued to spend on luxury during 2020 but have been doing this differently since the pandemic took hold. With high-end travel and restaurants largely unavailable, luxury services are increasingly being offered to the wealthy in their own homes.

“With their homes worth in the millions and designed exactly the way they want them, the wealthy haven’t had the same sense of urgency to leave them.” Jaclyn Sienna India, CEO, Sienna Charles

Restaurants are offering dine-at-home options and companies are providing home delivery of ingredients for the wealthy’s private chefs to use. Real-estate agents are seeing demand spiral for high-end properties that are closer to nature and offer security and safety. Auction houses have pivoted towards online auctions and are reporting robust demand.2 Interest has grown in securing additional passports for, or residency of, countries considered more secure. Meanwhile, the private jet market has not been nearly as badly hit as the commercial airline industry. Private aviation started picking up towards the middle of the year, attracting new types of customers seeking to reduce the number of touchpoints that could be contaminated by the virus. In the process of adjusting to this new normal, the wealthy’s preferences and demands are altering in ways that will influence on the luxury industry for many years to come (see Changing Luxury Preferences).

MANY OF THE ULTRA WEALTHY HAVE CONTINUED TO SPEND ON LUXURY DURING 2020, BUT HAVE BEEN DOING SO DIFFERENTLY.

2 Source: Financial Times

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THE GLOBAL LUXURY CITY INDEX

What are the premier cities where wealth and luxury meet? Our Global Luxury City Index draws out the top 15 such cities around the globe. The index benchmarks cities on different criteria to find the locations where wealth, high-end retail and a luxury lifestyle come together. In compiling the index, we have incorporated three main themes, each comprising a category: the level and growth dynamics of wealth; the development of the luxury retail market; and luxury lifestyle. CATEGORIES AND INDICATORS WEALTH

DEVELOPMENT OF THE LUXURY RETAIL MARKET UHNW population and five-year forecast

Luxury store footprint - fashion (10 brands)

VHNW population and five-year forecast

Luxury store footprint - watches and jewelery (nine brands)

LUXURY LIFESTYLE High-end restaurants Five-star hotels Casinos

Note: For further details of the index’s methodology, please see the Methodology section. Source: Publicly available information and Wealth-X data and analysis.

Each category comprises a number of indicators. These encompass key city metrics such as the current size of (and five-year forecast for) the UHNW and VHNW populations; the store footprint of the world’s foremost luxury fashion, watch and jewelry brands; and the number of high-end restaurants, five-star hotels and casinos. Each indicator is scored, with a weighted average of scores across the three categories giving a single overall score and city rank. The index ranks a total of 50 cities, selected on the basis of the size of their wealthy populations. Only those cities that score relatively highly in all three categories make it into the top 15.

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GLOBAL LUXURY CITY INDEX

BELOW WE HIGHLIGHT THE MOST NOTABLE FINDINGS:

City/rank

Overall score (out of 100)

New York 1

Tokyo 2

Hong Kong* 3

London 4

Paris 5

Los Angeles 6

Singapore 7

Seoul 8

Osaka 9

Shanghai 10

Chicago 11

Beijing 12

Washington DC 13

San Francisco 14 Taipei 15

28 26

Note: Chicago, Beijing and Washington DC are in 11th, 12th and 13th place respectively due to decimal differences. The total score is the weighted average of city scores (between 0 and 100) for each of the three categories: wealth, development of the luxury retail market and luxury lifestyle. Cities are defined on the basis of urban agglomerations and metropolitan (metro) areas, which include the built-up areas outside the administrative core. For example, New York includes New York City, Newark and Jersey City. Globally comparable city-level data is not available; as such, to ensure comparability is as precise as possible, we have sourced consistent metro- and urban-level population and GDP data. City definitions are from Oxford Economics. For further details of the index's methodology, please see the Methodology section. *Hong Kong is a semi-autonomous, special administrative region of China. Source: Wealth-X 2020

New York leads our Global Luxury City Index. Boasting more wealthy individuals than any other city in the world, the Big Apple is truly the city of the rich. New York also performs strongly in the index for its luxury retail footprint and particularly for its luxury lifestyle, having the highest number of five-star hotels and luxury casinos. Despite an uncertain political and economic environment in the US, the city’s wealthy population is forecast to grow steadily over the next five years, maintaining New York’s status as a world-leading luxury destination. Tokyo tracks in second place, followed by Hong Kong. The Japanese capital is arguably the leading city in which to experience luxury culture. With the largest number of highend restaurants and the biggest presence of luxury fashion stores globally, Tokyo is unique. It is also a significant wealth market, with the second highest population of VHNW individuals (after New York) and the third highest UHNW population (after New York and Hong Kong). Meanwhile, Hong Kong ranks third in our index, supported by its large number of wealthy individuals (Hong Kong has the highest number of UHNW individuals in Asia and the second highest globally) and also because of its options for luxury shopping, particularly for watches and jewelry. London ranks fourth, narrowly ahead of Paris. With robust wealthy populations, these two major European cities have a long history as luxury centers. Despite political and economic uncertainties, the strong, diverse cultures these cities offer and their positions as wealth and financial hubs continue to make them hugely attractive to the wealthy. Both cities also perform strongly in terms of luxury experience indicators, such as the number of high-end facilities and luxury stores. At the regional level, Asia dominates the top 15 ranking (with eight cities), followed by North America (with five cities, all of them in the US). Enjoying relatively the strongest financial and economic growth in the past two decades, Asia emerges as the region with the highest number of cities among the top 15. The rich and diverse cultures Asian cities offer contributes to their attractiveness as luxury hubs. The US, with five cities in the top 15, remains the country with the highest number of attractive luxury markets. Only two European cities make it into the top 15, affected mainly by weaker increases in wealthy populations and their wealth. China’s main cities, Shanghai and Beijing, feature at 10th and 12th place respectively, despite having a smaller number of wealthy individuals than many lower-ranked cities. Shanghai and Beijing’s position as financial and business hubs in the second biggest global wealth market (China) makes them attractive for luxury presence. Even though less than 20% of the wealthy Chinese population is based in these two cities, many wealthy individuals from China and overseas visit these cities frequently. Furthermore, the wealthy populations of these cities are expected to achieve among the fastest growth globally in the next five years.

ASIA DOMINATES THE TOP 15 RANKING WITH EIGHT CITIES.

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AFFINITY FOR LUXURY — CITY RANKING While our Global Luxury City Index3 provides insights from a top-down and generalist point of view, there is also value in understanding cities at a more granular level when it comes to how their ultra wealthy populations view and consume luxury. By analyzing affinity for luxury, we can understand the level of propensity that a city’s ultra wealthy population has for owning luxury assets. We examine ‘high’ and ‘medium’ affinity for luxury across two tiers of wealth among the ultra wealthy: those with $30m to $100m in net worth and those with $100m+. We classify the levels of affinity for luxury based on a wealthy individual’s ownership of ‘major’ luxury assets, such as a private jet, yacht or art collection, and/or their ownership of ‘other’ luxury assets, such as real estate, antiques, prestige cars and other vehicles, horses, wine, watches/jewelry or a sports team. The precise criteria are outlined in the table below. CRITERIA FOR GAUGING LEVEL OF AFFINITY FOR LUXURY (MUST FULFILL ONE OR MORE OF THE FOLLOWING CRITERIA)

HIGH

MEDIUM

Two or more 'major' luxury assets

One 'major' luxury asset and one 'other' luxury asset

One 'major' luxury asset and two 'other' luxury assets

Two 'other' luxury assets

(Must own)

OR Three or more 'other' luxury assets

Note: 'Major' luxury assets are considered to be private jets, yachts or an art collection, each worth a significant value. 'Other' luxury assets are considered to be real estate, antiques, prestige cars and other vehicles, horses, wine, watches/jewelry or a sports team, each worth a significant value. Source: Wealth-X 2020

3 The index comprises generalist luxury indicators. We advise using additional metrics specific to one’s sub-sector within luxury to improve the accuracy and commercial relevance of the results.

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LOCATION AND LEVEL OF WEALTH MATTER Our analysis highlights the difference in city populations’ propensity to purchase luxury assets and reveals that, ultimately, location and wealth matter. Where an ultra wealthy individual lives has a bearing on their luxury consumption and their preferences, just as their level of total net worth does. TOP 10 CITIES BY LEVEL OF AFFINITY FOR LUXURY HIGH LEVEL OF AFFINITY

MEDIUM LEVEL OF AFFINITY

Among those with $100m+ in net worth

Riyadh

47.1%

Milan

50.0%

Moscow

28.4%

Beijing

40.0%

Milan

25.0%

Toronto

33.3%

Paris

18.4%

Moscow

32.4%

London

17.0%

Vancouver

31.3%

Abu Dhabi

16.7%

Riyadh

29.4%

Zurich

13.3%

Miami

28.6%

Sydney

12.8%

Zurich

26.7%

Toronto

10.0%

Sydney

25.6%

New York

9.5%

London

24.1%

Among those with $30m-$100m in net worth

Moscow

4.3%

Milan

50.0%

Los Angeles

3.0%

Zurich

40.0%

Hong Kong

2.3%

Abu Dhabi

33.3%

Miami

1.6%

Beijing

25.0%

Atlanta

1.5%

Miami

12.9%

New York

1.4%

Paris

12.5%

London

1.3%

Toronto

11.1%

St. Louis, Missouri 1.2%

Singapore

10.8%

Houston

0.8%

Los Angeles

10.5%

Boston

0.8%

Moscow

8.7%

Note: Cities are defined on the basis of urban agglomerations and metropolitan (metro) areas, which include the built-up areas outside the administrative core. For example, New York includes New York City, Newark and Jersey City. Globally comparable city-level data is not available; as such, to ensure comparability is as precise as possible, we have sourced consistent metro- and urban-level population and GDP data. City definitions are from Oxford Economics. Source: Wealth-X 2020

The chart above shows the 10 cities4 whose ultra wealthy populations have the highest affinity for luxury. Even among these top-ranked cities of luxury enthusiasts there are large variations, summarized on the following page.

4 From a total of 100 cities with the largest UHNW populations.

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■

The ultra wealthy in Moscow and Riyadh are the leading luxury enthusiasts. Across both wealth tiers, Moscow is the strongest performing city among both the high and medium groups of affinity for luxury. Meanwhile, Riyadh displays by far the greatest affinity for luxury among those at the upper end of the ultra wealthy spectrum (with net worth of $100m+), although it fails to make the top 10 rankings across the other groups. Both cities are home to a larger proportion of their respective countries’ ultra wealthy populations than most of their peers, particularly among the very highest wealth tiers. Moscow is not only the symbolic and political capital of Russia, it is also the country’s business and cultural heart. Riyadh, the capital of Saudi Arabia and one of the largest cities in the Middle East, is a financial and economic regional hub and among the most visited cities in the Arab world.

■

Miami, Milan and Zurich are close behind. The ultra wealthy in these cities also show a high propensity for luxury goods ownership. While all three are luxury shopping destinations in their own right, those making their home here appreciate the same amenities. Miami is known for its high-end real estate and a coastline well suited to yachting, Milan is famous for fashion and Zurich is known for luxury goods such as watches and automobiles.

■

The level of wealth matters. Among the top 10 cities with populations showing a high level of affinity for luxury, there are significant differences across both wealth tiers. Owning ‘major’ luxury assets, such as private jets, yachts or a substantial art collection, or at least three types of other luxury goods, remains the preserve of those at the top end of the ultra wealthy spectrum with $100m+. Given the price tags of these items, this is to be somewhat expected but the results are strongly confirmatory. The difference is much less stark among the top 10 cities with a medium level of affinity for luxury, where both wealth tiers are able and choose to purchase two ‘more attainable’ luxuries or one ‘major’ luxury item.

■

London and New York feature in the top 10 of those with a high level of affinity for luxury. Across both wealth tiers, the ultra wealthy in these cities demonstrate a high level of affinity for luxury, though not quite as high as their wealthy counterparts in the cities that top the respective rankings. Both locations have a long history of attracting wealthy people, and those who make their homes in London and New York own a wide variety of luxury goods, reflecting the many high-end amenities available in these cities.

MOSCOW AND RIYADH ARE HOME TO THE LEADING LUXURY ENTHUSIASTS AMONG THE ULTRA WEALTHY.

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AFFINITY FOR LUXURY — UHNW PROFILES What are the defining features of UHNW individuals as a group when it comes to their affinity for luxury? Following on from our city analysis, here we examine how the level of propensity to own luxury assets changes according to different characteristics of the UHNW population, namely gender, wealth source and age. We use the same criteria for ‘high’ and ‘medium’ affinity for luxury (see page 10 for description) used in the previous section.

GENDER UHNW women show a slightly greater propensity for luxury at the high affinity level. Women represent just under 15% of the general UHNW population but they demonstrate a slightly greater propensity to own luxury goods and services at a high level of affinity. Their greater interest in art is one explanation, with a larger share of women looking to engage in art collection. Cultural factors are also at work in that high-value jewelry is more likely to be owned by women, boosting their propensity-for-luxury score. Yet the UHNW distribution with a medium affinity for luxury shows the inverse, with men showing a slightly greater propensity for luxury – this may reflect their greater interest in classic cars and other vehicles, or owning horses or sports teams. GENDER AND AFFINITY FOR LUXURY AMONG UHNW INDIVIDUALS General UHNW population (%) More or fewer UHNW individuals than the general UHNW population (%) HIGH affinity

MEDIUM affinity

90%

3.5% 85.4%

80%

85.4%

70% 60% 50% 40% 30% 20%

3.8%

10%

14.6%

0% -10%

Female

14.6% -3.8%

-3.5%

Male

Female

Male

-20% Source: Wealth-X 2020

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SOURCE OF WEALTH UHNW individuals with inherited wealth are more likely to show a high affinity for luxury. How does the source of a person’s wealth affect their affinity for luxury? While most of the ultra wealthy have self-made fortunes, this group actually accounts for a virtually unchanged proportion of the population with a high level of affinity for luxury. In contrast, those with inherited wealth are more likely, within the general UHNW population, to show a high affinity for luxury. This may reflect two forces at work. First, many of those with self-made wealth may still be devoting much of their time to running their businesses and may not yet be at the point where they are looking to spend more of their wealth and time on luxury items. Second, inheritance tends to be a more common source of wealth among women, who, as discussed on the previous page, show a greater propensity for a high affinity for luxury. Meanwhile, the UHNW distribution with a medium affinity for luxury was found not to differ significantly from the general UHNW population, and hence is not displayed graphically. SOURCE OF WEALTH AMONG UHNW INDIVIDUALS BY HIGH AFFINITY FOR LUXURY General UHNW population (%) More or fewer UHNW individuals than the general UHNW population (%)

8.5%

Inherited

Inherited/ self-made

-4.2%

Self-made

3.5%

23.7%

67.7%

0.8%

-20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Source:Wealth-X Wealth-X2020

THE DISTRIBUTION OF THE SELF-MADE MAJORITY REMAINS VIRTUALLY UNCHANGED WHEN CONSIDERING THOSE WITH A HIGH LEVEL OF AFFINITY FOR LUXURY.

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AGE UHNW individuals aged 50 to 70 have a greater propensity than other age groups for a high level of affinity for luxury. Ultra wealthy people between the ages of 50 and 70 show the greatest propensity for a high level of affinity for luxury, in addition to being the largest group in size. Likely to be active and also still earning, this age group has the resources, desire and lifestyle to spend substantial amounts on major luxury assets, as well as on other luxury goods, such as classic cars, jewelry and watches, real estate and sporting interests. Interestingly, despite having greater average net worth ($155m) than the two other age groups, those aged over 70 slightly decline in number among those with a high affinity for luxury. This may be largely attributable to their life stage, with a larger share of older ultra wealthy individuals tending to focus on ‘giving back’ to society5 rather than accruing possessions. Those aged under 50 show the largest decline in representation when accounting for a high affinity for luxury. This is largely explained by their focus on wealth building, spending most of their time and energy on the day-to-day running and building of their business(es). Similarly to source of wealth, a medium level of affinity for luxury shows little difference to the distribution of the general UHNW population by age. AGE OF UHNW INDIVIDUALS BY HIGH AFFINITY FOR LUXURY General UHNW population (%) More or fewer UHNW individuals than the general UHNW population (%) 80% 70% 10.7%

60%

55.9%

50% 40% 30%

31.0%

20% 10% 0%

13.1% -7.3%

-3.4%

-10% -20%

<50

50-70

70+

Source: Source: Wealth-X Wealth-X 2020

5 Source: Wealth-X’s World Ultra Wealth Report 2019

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ARCHETYPES BY LUXURY GOOD OWNERSHIP Ultra wealthy individuals who own private jets, private yachts or substantial art collections show distinct characteristics. By studying the ownership of specific types of luxury goods, we find a number of distinctive characteristics among the ultra wealthy. In this section we examine three different groups: individuals who own private jets, private yachts or art collections – each worth at least $5m. There is naturally some overlap across all three cohorts, yet each displays a number of distinguishing traits, whether related to average wealth, gender, wealth source, country representation, age or primary industry.

UHNW JET OWNER

UHNW YACHT OWNER

UHNW ART COLLECTOR

345

510

490

United States

Canada

United Kingdom

Mexico

Greece/Russia

China

Inherited

5.4

7.8

15.3

Inherited/self-made

23.2

28.0

32.3

Self-made

71.4

64.2

52.4

92.2

89.3

78.4

7.8

10.7

21.6

<50

8.9

7.9

7.5

50-70

52.7

48.7

38.3

70+

38.5

43.4

54.2

Average wealth ($m) TOP 3 COUNTRIES

SOURCE OF WEALTH (%)

GENDER BY POPULATION (%) Male Female AGE (%)

Note: Each of these specific luxury goods are worth at least $5m. Average wealth is rounded to the nearest $5m. Source: Wealth-X 2020

WEALTH-X GLOBAL LUXURY OUTLOOK 2020: A WORLD OF CHANGING PREFERENCES

To Table of Contents ARCHETYPES BY LUXURY GOOD OWNERSHIP

TOP 5 PRIMARY INDUSTRIES (% ULTRA WEALTHY TOP 5 PRIMARY INDUSTRIES (% ULTRAPOPULATION) WEALTHY POPULATION)

PRIVATE JET OWNERS: MALE AND BUSINESS FOCUSED

UHNW JET OWNER 22.9%

Banking and finance 9.1%

Real estate Business and consumer services

8.1%

Energy

8.0%

Industrial conglomerates

6.5%

UHNW YACHT OWNER Banking and finance

14.7%

Hospitality and entertainment

10.9%

Real estate

10.3%

Industrial conglomerates Shipping, packaging and distribution

PRIVATE YACHT OWNERS: STILL LARGELY FOR THE VERY WEALTHY

8.3% 6.1%

UHNW ART COLLECTOR Non-profit and social organizations

21.9% 16.6%

Banking and finance Hospitality and entertainment Real estate Business and consumer services

With many private charter options now available, ultra wealthy individuals who own a private jet often do so for the flexibility, privacy, bespoke customization to their needs or status it affords. Perhaps surprisingly, among the three cohorts, private jet owners have the lowest average net worth, at $345m, indicating business needs are often at the forefront of such a purchase. This is also reflected in the dominant representation of the self-made ultra wealthy, accounting for more than two-thirds of such individuals, a significantly larger proportion than among yacht or art collection owners. Most private jet owners are aged 50 to 70, making them comparatively younger than the other two cohorts. Again, this is a reminder that many of these individuals are busy managing the day-to-day affairs of large corporations. Women comprise just 8% of private jet owners, just half of the female share (almost 15%) of the general ultra wealthy population. This may reflect the higher proportion of inherited fortunes among ultra wealthy women, making such a purchase less necessary for business reasons. Ultra wealthy individuals from the US have the greatest representation within this cohort (and in the two other groups), reflecting not only the country’s size, wealth distribution and infrastructure (conducive to jet use) but also its status as having by far the world’s largest ultra wealthy population.

8.2% 7.6% 6.7%

Note: Each of these specific luxury goods are worth at least $5m. Primary industry refers to the industry to which the ultra wealthy devote most of their time, not necessarily the industry by which they created their wealth, although they are often one and the same. Source: Wealth-X 2020

THE US REPRESENTS THE LARGEST MARKET AMONG ALL THREE ULTRA WEALTHY ARCHETYPES; YET THE UK COMES SECOND AMONG PRIVATE YACHT OWNERS AND ART COLLECTORS AND CHINA'S FAST-GROWING INTEREST IN ART PLACES IT THIRD AMONG THIS GROUP.

Used for family, social and business functions, private yachts remain the preserve of the upper tiers of the ultra wealthy – such individuals have an average net worth of $510m, the highest of the three cohorts. Luxury yacht prices start in the millions of dollars and the maintenance and management of such boats bring a not insubstantial ongoing cost, not to mention a yacht’s depreciation in value with age. Ultimately, a yacht is not a financial investment but an emotional one, an evocation of lifestyle and declaration of status. Inheritance as a source of wealth is slightly higher among yacht owners than among the general UHNW population – a nod to the long-standing culture of yachting among the wealthy in many parts of the world. Owners with hospitality and entertainment as their primary industry, as well as shipping itself, are more highly represented in this cohort. The US has long been the world’s largest yacht market but there are also major hubs across Europe, including high ownership rates among Russia's wealthy. Despite being home to the world’s second largest population of UHNW individuals, China remains a small, albeit growing, yachting country for the wealthy. This is due, in part, to its history and culture as well as China’s lack of broad-based port infrastructure, although this is improving.

MAJOR ART COLLECTORS: OLDER AND MORE FEMALE Like their yacht-owning counterparts, people who own an art collection worth at least $5m tend to be in the upper wealth tiers, close to the demi-billionaire range. Making such an outlay speaks of their wealth but also their interests, values and status aspirations. Many appear to be at a different life stage to those in the other two cohorts. Most are aged over 70 and 22% have non-profit and social organizations as their primary industry, far above the 6% seen among the general UHNW set, indicating that their main focus is no longer business building or wealth accumulation. Those attached to the hospitality and entertainment industries are highly represented. Previous Wealth-X research has shown that ultra wealthy individuals over 70 have a greater interest in art than their younger counterparts,6 with a similar distinction among men and women – a clear differentiator of this cohort is the much higher representation of women, at 22%, almost three times the share among private jet owners. The UK and China feature in the top three UHNW countries for art collectors, reflecting the UK’s longstanding reputation for expertise in the art world and a fast-rising interest on the part of the Chinese ultra wealthy population.

6 Source: Wealth-X’s World Ultra Wealth Report 2019

WEALTH-X GLOBAL LUXURY OUTLOOK 2020: A WORLD OF CHANGING PREFERENCES

To Table of Contents

CHANGING LUXURY PREFERENCES So far 2020 has been a defining and challenging year for many luxury brands. As the coronavirus has continued to spread on a global scale, each country has found itself in a unique position, with differing policy prescriptions and infection rates. Some economies seem to be returning to ‘normal’ more quickly than others, although the near-term outlook for all remains fairly uncertain. The pandemic has changed the luxury habits of the wealthy and the longer the emergency continues, the more likely these new behaviors and lifestyle choices will become the new normal. Here we take a look at the wealthy’s changing luxury preferences and what this means for providers that cater to these individuals. Continued growth of online distribution. Despite initial reservations about the limitations of digital shopping for luxury goods, this distribution channel has continued to grow. Throughout the pandemic, more brands have pivoted towards this medium, with many seeing results outperform expectations. With the wealthy becoming increasingly accustomed to purchasing online, and luxury providers expanding rapidly and enhancing their digital offerings, this trend is unlikely to be reversed.

“The wealthy continue to value luxury as they did prior to Covid-19. However, the way they buy luxury has changed, with more having moved to making their purchases online.”

Private luxury is here to stay. The wealthy’s home residence has become more important than ever. During the pandemic, such individuals have become accustomed to high levels of luxury service at home. Many have also sought out a second home for reasons of safety and security, as well as privacy.

“Quite a few wealthy people are looking for exclusive safe havens in the form of second homes – safety has become a priority for them. But with this purchase, they expect access to established locations often via residency and additional passports as well as access to medical help.” Alistair Brown, CEO, Alistair Brown International Real Estate Ultimately, in the current volatile environment, luxury brands and service providers cannot afford to stand still. To prosper in such times they must be flexible, quick moving and as attentive as ever to the changing demands of their clientele.

Winston Chesterfield, Principal, Barton A move towards intangible luxury. The challenges and disruption (and indeed loss) caused by the pandemic have prompted many people to reappraise what is important to them. Among the wealthy, there has been an increase in demand for intangible assets, namely additional passports and citizenships or on-demand healthcare, to ensure their family and close friends are safe and healthy.

“The wealthy’s mindset around what luxury is has changed – their priorities have shifted towards their families. Luxury now includes a second passport, access to healthcare and the freedom to go when and where they feel safe and secure.” Jaclyn Sienna India, CEO, Sienna Charles

WEALTH-X GLOBAL LUXURY OUTLOOK 2020: A WORLD OF CHANGING PREFERENCES

To Table of Contents

METHODOLOGY To profile the wealthy and their relationship to luxury, this report leverages the unique and proprietary Wealth-X Database, the world’s most extensive collection of curated research and intelligence on wealthy individuals. Our database provides insights into their financial profile, career history, known associates, affiliations, family background, education, philanthropic endeavors, passions, hobbies, interests and much more. Our proprietary valuation model (as defined by net worth) assesses all asset holdings, including privately and publicly held businesses and investable assets. The database uses the primary business address as the determinant of a wealthy individual’s location. References to $ or dollars refer to US dollars. The Global Luxury City Index benchmarks cities on specific criteria to find the leading cities where wealth, luxury retail and a luxury lifestyle come together. In compiling the index we have incorporated three main themes, each comprising a category: the level of wealth; the development of the luxury retail market; and luxury lifestyle. Each category comprises a number of indicators. For each indicator, each city is given a score between 100 (best) and 0, based on publicly available information and Wealth-X data and analysis. A weighted average of scores across the three categories gives a single overall score and city ranking. The index ranks a total of 50 cities, selected on the basis of the size of their wealthy populations. Only those cities that score relatively highly in all three categories make it into the top 15. LIST OF INDICATORS AND WEIGHTINGS Category weight (%) Indicator weight (%) WEALTH

40% UHNW population and forecast

15%

UHNW population (five-year forecast)

VHNW population

15%

DEVELOPMENT OF THE LUXURY RETAIL MARKET

30%

LUXURY LIFESTYLE

Luxury store footprint - fashion (10 brands)

15%

Luxury store footprint - watches and jewelery (nine brands)

30%

High-end restaurants

12.5%

Five-star hotels

12.5%

Casinos

15%

VHNW population (five-year forecast)

Source: Publicly available information and Wealth-X data and analysis.

Analysis of the data and additional insights in this report were provided by the Wealth-X Analytics team. Leveraging the Wealth-X Database and its own data models, Wealth-X Analytics provides customizable data assets tailored to your organization’s needs. Wealth-X Analytics is uniquely positioned to provide market-level data and analysis to inform strategies across the financial services, luxury, not-for-profit and education industries. The Wealth-X Analytics team is composed of experienced analysts, economists and thought leaders, armed with deep sector knowledge and unique skills. The team regularly collaborates with clients across industries to provide: ■

Market sizing

■

Forecasting

■

Profiling/archetyping

To learn how Wealth-X Analytics complements our full suite of data-driven products and services, email us at contact@wealthx.com.

WEALTH-X GLOBAL LUXURY OUTLOOK 2020: A WORLD OF CHANGING PREFERENCES

ABOUT WEALTH-X The global leader in wealth information and insight, Wealth-X partners with leading prestige brands across the financial services, luxury, not-for-profit and higher-education industries to fuel strategic decision-making in sales, marketing and compliance. Wealth-X boasts the world’s most extensive collection of records on wealthy individuals and produces unparalleled data analysis to help organizations uncover, understand and engage their target audience, as well as mitigate risk. Founded in 2010, with staff across North America, Europe and Asia, Wealth-X provides unique data, analysis and counsel to a growing roster of more than 500 clients worldwide.

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ASIA DOMINATES THE TOP 15 RANKING WITH EIGHT CITIES. 3