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SUPERYACHT #505
May 2004

Article selected from our quarterly magazine dedicated to the largest and most luxurious boats with information, interviews, technical articles, images and yachting news


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Article by
Tommaso Nastasi


THE POTENTIAL MARKET FOR LUXURY YACHTS, TRENDS AND FORECASTS

The main luxury yacht client profile is represented by individuals who belong to a social class in the world of high finance and business, with very high incomes and personal wealth, with a basically medium-high level of education and with behaviour and interests revolving around entertainment and the beautiful things in life; it is precisely in this context that the luxury products considered as a whole find a highly marked competitive placing. On a mental level and above all on a desire level it is interesting, as far as concerns yacht marketing, to analyse what other products luxury yachts compete with (competition on a desire level). Within this viewpoint we can quote, purely as an example, luxury cars, private jets and to a lesser degree a certain class of fine watches. Luxury yachts are at the top of this pyramid of luxury, occupying a well defined placing within the so-called hard luxury cluster (extreme luxury class).

Thus these high unit value luxury products concern a very well-to- do clientele bracket, with particularly great spending power. So- called HNWI, or High Net Worth Individuals, belong to this elite class, in other words those individuals with a financial wealth (financial assets) exceeding one million dollars.

The number and financial wealth of high net worth individuals has increased over recent years despite negative fluctuations in the economy. In particular, the family of high net worth individuals can be divided into segments representing the different wealth ranges, giving three main categories: high net worth individuals, very high net worth individuals, ultra high net worth individuals (see figure 1).

These high net worth individual categories are the potential target of the luxury sailing market. This can easily be deducted from figure 2, which shows, as well as the target for each main segment of luxury yachts and relative reference price, how sensitive to the macroeconomic conditions in cyclic terms is the expected market demand detected for each potential target.

What is particularly interesting to note is that a rise in market bracket, corresponds to a reduction in the impact of a negative macro economic trend on its clientele. As a consequence, it is calculated that the demand for luxury yachts is affected so much less by the general economic trend that for some segments of luxury yachts, we could even talk of anti-cyclic demand (see figure 2). To evaluate and estimate the potential of the luxury yacht market, it is important to analyse evolution in terms of number and overall wealth of high net worth individuals. More specifically the commercialisation of luxury yachts, of these luxury toys, within a specific geographic area basically depends on a series of factors that can be summarised in a number and wealth of millionaires. It is natural, then, that the higher the number and/or the higher the average wealth of this elite class, the greater potential there will be, in terms of market demand, for a certain country. The analyses carried in an attempt to investigate into this class, often the object of wild imaginings, gave unexpectedly interesting results.

Numerically speaking, in 2002 high net worth individuals were mainly located in North America and in Europe, together representing 65.75% of the world total, completely overshadowing the other geographic areas.

Figure 3 gives the trend for the number of high net worth individuals classified into main geographic areas. From 1997 to 2002 this overall number went from 5.24 to 7.3 million, showing an increase of around 40%.

But the interesting facts do not finish here. From further analysis, it emerges how the geographic areas with the greatest rates of positive variation are Europe and Pacific Asia. Figure 4, in fact, shows how the percentage variation of the number of high net worth individuals, within the main geographic areas identified, like Pacific-Asia and Europe has grown more than in the other geographical areas and in particular more than in North America, which, although having the greatest percentage of millionaires in proportion to its population (it is estimated that the prospective market of luxury yachts equals 0.69% of the whole population), over the last 2 years has shown no variation, remaining at 2.20 million individual millionaires.

Figure 5 shows not only the average annual growth level of the number of high net worth individuals, classified in terms of main geographic areas, but also deviations compared to the world average. From 1997 to 2002, the overall world number of high net worth individuals increased at an average annual rate of 7.1%. Countries showing positive deviation compared to the world average are Pacific-Asia, South America and Europe while only North America of all the main geographic areas, evidenced an average annual growth rate (+4.71%) lower than the world average.

With reference to the main potential targets for luxury yachts, it emerged that from 1997 to 2002 the ultra high net worth individuals present the greatest rate of annual growth, with 9% compared to the 7.2% annual of the "very high net worth individuals" and the 7.09% of the "high net worth individuals". It must be noted how the world number of ultra high net worth individuals alone from 1997 to 2002, presented the greatest increase with a leap of 50%.

It is no coincidence that luxury yachts, in the medium-high bracket, gave the best market performance over recent sailing years. This factor, apparently obvious, enables us to show how the luxury yacht market follows the evolutionary dynamics of the high net worth individual cluster, more or less incidentally. As already remarked the number of these millionaires individuals is not the only variable that affects the growth prospects of the luxury yacht market; their wealth is also very important.

The overall wealth of the whole cluster, in fact, amounted to 27.2 trillion dollars in 2002! Figure 6 shows the historical trend of overall wealth classified into the main geographical areas in the world, as well as the wealth forecasts for the financial year 2007. Overall wealth of high net worth individuals from 1997 to 2002 increased by 42.41%. Forecasts for 2007 predict that an overall value of 38 trillion dollars will be reached, with a growth of around 40% compared to the 2002 value.

Figure 7 highlights the variation rates of the high net worth individuals' wealth within the main geographic areas in the world. First of all it must be specified that the high performances shown during 1997- 1998 and 1998-1999 are the result of two main factors: the expansion of world economy (the OECD calculated a world economic development of 3%); the growth of share markets (North America 29.5% - Europe 26.3% - Pacific-Asia 69.9%). As well as this the reduction in wealth affecting North America must be signalled, with a drop of 2.63% (the World Trade Centre terrorist attack considerably affected the accumulation of American wealth during 2002, even if forecasts for 2003 are positive, showing an inversion in trend). From the data given so far, it clearly emerges that the number and wealth of high net worth individuals have grown on average at the same rate (7.54% wealth, 7.1% the number). The quantitative analysis carried out so far has brought to light the presence of a considerable potential market for yacht industries operating in the luxury yachts bracket. Forecasts regarding the number and wealth of the rich people are positive and therefore a growth in potential market demand can be expected over the next few years. In other words, the world luxury yacht business shows an interesting prospective market, rich in opportunities (even in terms of emerging countries entering the world of luxury yachts), within which appropriately synchronised international marketing policies regarding strategic and competitive placing of yacht builders, can make all the difference in terms of competitive advantage. The potential market exists, now it is just a question of knowing how to conquer it.

The whole report, complete with detailed illustrations and covering a total of over 70 pages, is available on CD-rom. Please address requests for a copy or for further information to the following e-mail address: tommaso.nastasi@email.it.