Budapest

The boutiques in Budapest are empty and still. Salespeople stand solitary in the glittering world behind the shop windows. Hungary’s luxury shops are losing customers. “Budapest has lost its identity,” says expert Oliver Petcu.

They have become a rare species, the luxury ladies of Budapest. You have to lie in wait a long time to observe them in their natural habitat. Then they scurry in their fur coats and their spiked high heels across Andrássy, Budapest’s noblest shopping mile. Yet, on this cold, snowy January evening, few of them dare to leave their warm nests.

“Hungary’s luxury market was always very volatile, because it is highly dependent on foreign buyers,” says luxury expert Oliver Petcu from the firm CPP Luxury Industry Management Consultants. Only 30 percent of all customers are domestic, the consultant estimates. In Hungary, tourism and luxury go hand in hand.

A change has been occurring over the past two years, which in the long term could become a threat to the Hungarian luxury industry. Instead of affluent travellers from Asia, now more low-budget tourists from other EU countries and the USA visit Hungary, says Petcu. The average accommodation prices in the five-star hotels of Budapest are among the lowest in Europe. “If the government does not make any financial efforts to reposition the country for tourism, all of the luxury sectors will be facing hard times,” he predicts.

Below zero temperatures on the luxury thermometer

The staff in the luxury shops are also not very optimistic when asked how business is doing. “We’ve hardly had any customers here in recent weeks,” says the doorman of a high-class shop. He does not want his name to appear in this report, but talks openly about the problems that the luxury shops on Budapest’s boulevard have. “The most prosperous tourists are not coming right now; it’s cold and unpleasant.”

If it were only the weather, but the political uncertainty and the European debt crisis have also left distinct marks on the Hungarian luxury market. For Louis Vuitton, Gucci and Burberry, Hungary is the most difficult market in Central Europe. The prices for exclusive real estate are in a downward spiral.

Traditionally, luxury is not at home in Hungary. One reason is that openly flaunting luxury is more frowned upon in Hungary than in neighbouring eastern European countries. Another is that the prosperous Hungarians were drawn to the big boutiques – to Milan, Paris and Munich – upon the opening to the west. “The few very rich Hungarians have usually shopped abroad and they will probably continue to do so,” says Petcu. The big noble brands therefore initially did not opt for opening branches in Hungary. Not until the EU accession did Budapest become more interesting as a location for the fine boutiques.

“We are competing with Vienna and Milan,” adds Joszef Andrasch, the press officer for Dolce&Gabanna in Hungary. He does not want to see Budapest understood as a cheap location. The prices are all the same in Europe. Unlike luxury expert Petcu, he is more optimistic. “Our business recovered slightly again last year,” says Andrusch. Like other international brands, the Italians also rely on dealings with business travellers and vacationers with their shop in Budapest. The flights from Seoul, Peking, New York and Dubai are the ones that bring in the sales.

Wine, pâté and porcelain

One rarely finds domestic luxury brands on Budapest’s luxury boulevard. On the international market, only a few Hungarian premium manufacturers have managed to transfer their good reputations from the aristocratic past to the modern luxury world. In particular, Communist rule left behinds its traces. Forced industrialization and urbanization of the workforce were the death of many small manufacturing firms with high quality demands – they were swallowed up by cooperatives.

After the Iron Curtain fell, many of Hungary’s premium brands were sold to foreign corporations and continued to produce under their names. The luxury expert nonetheless sees great potential for premium brands from Hungary. In his opinion, in addition to wines and pâtés, the porcelain manufacturer Herend in particular could make better use of its international renown.

Even after its socialization by Hungary’s Communist leadership in 1948, the manufacturer had relatively free rein in its daily business. The foreign currencies that the fine porcelain brought the country were too important. In 1993 the company was re-privatized and is now 75 percent is owned by its own employees. “The owners of these brands need to understand that in spite of their great history, they are in the midst of tough international competition,” says Petcu. Abroad in particular, Herend missed out on drawing attention to its own product by using skilful marketing. This assessment is not false, as research for this article confirmed. “We have decided to make no comment,” is the response of its management to a request for an interview.

While Hungarian brands are unsuccessful in positioning themselves internationally, the international brands in Hungary are becoming increasingly sceptical. In the fashion sector in particular, Petcu believes, some boutiques are bound to close. He sees the key to a turnaround in tourism. “But, with the present infrastructure, Hungary will have a very hard time attracting the very wealthy travellers.” So, it is up to the government to save the luxury ladies on Andrássy from extinction.


An Interview with Oliver Petcu: “Budapest has lost its identity”



The demand for premium brands is shrinking all over eastern Europe – in some places by more than 20 percent. Has eastern Europe lost its desire for luxury?

Even those countries that showed potential for growth in the past, like Ukraine or Serbia, are now shrinking greatly – in particular in the luxury market. A number of factors are responsible for this: mainly politics, but also shrinking demand, financial instability and the lack of access to funding opportunities. Luxury markets such as Romania, Poland and Bulgaria stagnated last year and we can also expect this in 2013. On average the luxury market in these countries dropped by 20 percent.

The Hungarian and Czech luxury markets are traditionally highly dependent on tourism. How hard is the crisis hitting the luxury sector here?

In the past two years, mainly low-budget travellers from other EU countries and the USA are coming to Hungary. The average accommodation prices in the five-star hotels of Budapest are among the lowest in Europe. And Malev’s bust intensified this crisis. If the government does not make any financial efforts to reposition the country for tourism, all of the luxury sectors will be facing hard times. A lot of shops will be closing in 2013, in particular for fashion and accessories. The luxury market in the Czech Republic relies on foreign tourists much like the Hungarian. But there, some five-star hotels were reopened or renovated. Like the Hungarian luxury market, only 30 percent of the luxury sector aims at natives. There will not be any major openings, but at least the market appears to be able to stay at its level. One reason is that the luxury brands in the Czech Republic mainly opened small shops with a limited supply.

What differentiates Hungarian luxury consumers from the others in Europe?

Hungarians, Croatians, Poles and Slovenians are very similar to Anglo-Saxon luxury consumers. They are very conservative and only have a limited desire for luxury brands. The need to show off with luxury brands is lesser in these countries than in the rest of eastern Europe. The few very rich Hungarians have in the past mainly shopped abroad and they will probably continue to do so.

So far, we have been talking about the big international brands. What local brands from Hungary would have a chance to be successful internationally?

Hungary has great potential to build up its own luxury brands – such as porcelain by Herend or liqueurs by Unicum. But, the owners of these brands need to understand that in spite of their great history, they are in the midst of tough international competition. Abroad in particular, Herend missed out on drawing attention to its own product by using skilful marketing. Hungarian wines and pâtés also have great potential if they were properly marketed.

But, the situation on the domestic market would remain difficult. More and more no-frills airlines like Wizz Air and Ryanair are landing at Budapest Airport...

The perception of Budapest as a hub for inexpensive tourism could have a long-term negative effect on the city’s image. Budapest is presently a city that has lost its identity. And the authorities appear to overlook the potential of tourism. Whereby they could also improve the situation at the airport and offer local premium brands and luxury items instead of the usual duty-free business.