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The Effects of changes on the number of high networth individuals on the Superyacht Industry

von Difrine Madara (Autor)

Bachelorarbeit 2020 41 Seiten

BWL - Offline-Marketing und Online-Marketing

Leseprobe

Table of Contents

Abstract

CHAPTER ONE: INTRODUCTION
Background to the Study
Aims and Objectives
Significance of the Study
Outline of the Dissertation

CHAPTER TWO: LITERATURE REVIEW
Global Economic Trends Affecting the Luxury goods industry
Consumption of Superyachts
Competitiveness of the Superyacht Industry
The Conclusion to the Chapter

CHAPTER THREE: RESEARCH METHODOLOGY
Research Strategy
Research Method
Research Approach
Data Collection
Data Analysis
Challenges and Data Limitations

CHAPTER FOUR: FINDINGS AND DISCUSSIONS
Content analysis of reports on the link between Economic Growth in International Markets and Ownership of Superyachts
Effect of Increase in HNWIs on Sale of Superyachts
Future of the Superyacht Industry

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
Conclusions
Recommendations
Bibliography

Abstract

The superyacht industry is one of the unique subsectors of the leisure marine industry. Unlike other subsectors, the superyacht industry depends largely on the presence of billionaires within the economy, as the price of a superyacht starts around $15 million and regularly goes beyond $200 million. In this regard, the performance of the superyacht industry depends on the ability of the economy to produce high networth individuals (HNWIs). This paper, therefore, explored the effects of HNWIs on the Superyacht industry. The paper used both content analysis and descriptive statistics to evaluate this phenomenon. From the analysis, the paper noted that the net worth of individuals, tastes, and preferences of the consumers played an integral role in determining the consumption of superyachts. Therefore, the increase in HNWIs was vital for the growth of the industry. In conclusion, the research suggested more studies on the relationship between wealth and performance of the superyacht industry should be undertaken to better understand it.

CHAPTER ONE: INTRODUCTION

Background to the Study

Economic challenges of the last decade adversely impacted investment in the luxury segments of the global economy. In Europe, for instance, countries, such as Greece, Italy, and Spain, suffered debt crises, while major economies, such as UK, France, and Germany, endured long periods of stagnant, low economic growth and deflation (Uzgoren and Geney, 2012). These economic problems stifled the growth of disposable income among the wealthiest citizens of Europe. To understand the trends of the superyacht industry, it is important first to explore the consumer groups of these luxury products. Superyachts are built to suit the needs and tastes of the owner. Due to their customised nature, they are hard to sell and extremely expensive. According to Forbes, superyachts can be sold for more than USD 200 million, making them one of the most expensive goods globally (Merk, 2017). While the prices of superyachts are exorbitant various statistics pointed towards significant demand for these goods even in periods of economic hardships.

Though the economic recession in most of the high income markets around the world in the early 2010s led to reduction in production of superyachts, supplies have picked up significantly in the last five years. The massive turnaround in demand for superyachts was occasioned by strengthening economies and an increase in the value of many companies in the United States and Europe (Lenihan and McGuirk, 2017). For example, there were 830 yachts on order or under construction in 2019 accounting for an aggregate length of 32655 meters of yacht (Global Order Book, 2019). These orders were largely in Europe. However, emerging markets such as China (8), UAE (11), South Africa (13) and Brazil (10) saw massive improvements in yatch orders. These reports suggest that stability of economies impact on the competitiveness and performance of the superyacht industry. Since superyachts almost exclusively attract high networth individuals, this paper explores if changes on the number of high networth individuals (HNWIs) globally would have direct impact on the growth of superyacht industry.

Recent estimates indicate that yachting business would continue to generate impressive figures during this decade. On average, the most demanded yachts are now more than 50 meters in length and 9 meters longer than the average orders of 2015 (Lenihan and McGuirk, 2017). Larger and longer yachts are fitted with features that can offer all the comforts of dry land, such as cinemas, fitness studios, swimming pools, high spec galleys (kitchens), depending on the individual preferences. In the meantime, superyacht manufacturers believe that this market has massive potential for the future, given that there are more than 200,000 households considered as ultra-high net worth individuals in the world today (Wealth X, 2019). This market currently owns only 4,476 yachts of more than 24 meters in length, which shows that there is still a huge untapped market for manufacturers. In addition, Global Order Book (2019) indicated that 470 construction projects were underway in several parts of the globe in 2019. As a result of the expected increase in demand as the value of many companies continues to improve, the price of a yacht is expected to increase beyond USD 400 million for the largest, longest and most exclusive yatchts (Pendleton & Warren, 2018). Though a large portion of superyachts are built in Italy, an increase in demand has seen industries in the USA, Netherlands, and Turkey enhancing their capacity. Strong economies in Europe, North America, and other emerging economies are expected to increase demand for yachts significantly.

Aims and Objectives

The primary goals of this research are to examine if changes on the number of high networth individuals (HNWIs) globally would have direct impact on the growth of superyacht industry. The paper evaluates the improvement in numbers of the wealthiest households in the world, demand, and supply of superyachts and performance of the superyacht industry around the world. Therefore, this study intended to fulfil the following specific objectives:

i. To determine the growth in ownership and use of superyachts globally
ii. To assess how the increase in the number of billionaires affect sales of yachts
iii. To predict the future of the superyacht industry in general

In attaining these specific objectives, the study answered the following research questions:

i. What is the effect of an increase in billionaires on the sales of yachts, new build construction, and the refit market?
ii. What does the future look like for the industry in terms of ownership, construction, and environmental impacts?

Significance of the Study

Today, many luxury brands, including yacht builders, have realised that they have to expand their market to attract more new buyers. For this reason, superyacht builders must understand the taste of new HNWIs and communicate with them effectively, especially those who do not come from the traditional markets in Europe and North America. This research is, therefore, important in understanding the motivations for luxury consumption in both Western and non-Western societies. The research also provides in-depth insights into the purchase behaviour of yacht buyers and whether changes in the disposable incomes of HNWIs could influence supply and demand of superyachts.

Theoretical Framework

Luxury products, such as superyachts, often have unique characteristics depending on their luxuriousness. These unique characteristics are also based on the consumer’s perception of the product depending on factors, such as aesthetics and price, social status and association and symbolism for self-image and self-identification (Becker, Lee and Nobre, 2018). Consumer’s purchasing decision for luxurious products is also attributed to psychological factors, such as commitment, loyalty, and intimacy. In relation to multi-million-dollar products such as superyachts, researchers suggested that consumers were largely motivated by status. Status consumption can be described as the acquisition of a product by a consumer for the value or status that they may offer. In this study, status is defined as the features of a product that makes it desirable beyond its utilitarian value. For example, high-status products draw respect and make others think highly of that consumer when consumed in the presence of other people (Schaal, 2016). High-status products are extremely expensive; thus, can only be afforded by the wealthy members of society. In this regard, ownership of products, such as superyachts, is associated with the wealthiest members of a particular society.

Several theories have been proposed in an attempt to explain why consumers practice status consumption. Becker, Lee, and Nobre (2018) suggested that status consumption can be linked to basic human motivations, group motivations, culture-based motivations, and so on. Though some luxury goods may offer no tangible benefits compared to their high prices, it is evident that these goods can potentially raise the status of their owner among his/her peers or within the contemporary society. Uzgoren and Geney (2012) indicated that wealthy people would pay premiums for superyachts, which offer no particular difference in quality to other yachts to reflect on their high status. Since these products are not essential, and their purchase linked to the level of disposable income a person has, during economic hardships, the demand for these products is expected to drop rapidly. However, as shown in the snob effect experiment, the demand for these products often remains constant since the wealthiest people are rarely affected with choices to drop the purchase of luxury products (SYBASS, 2019). On the other hand, during the economic boom, the demand for superyachts increases as the economy can produce more billionaires.

Outline of the Dissertation

This dissertation consists of five chapters, i.e., introduction, literature review, methodology, analysis and discussion, and conclusion. The introduction chapter provides an overview of the contemporary superyacht industry and why this study is necessary. The literature review chapter defines the superyacht industry and explains various economic trends that influence the industry. The methodology chapter explains the procedures followed to conduct the study. The chapter explains the research design, data collection, and analysis procedures. Analysis and discussion chapter presents the findings of the research and determine if the findings answer the research questions. Finally, the conclusion chapter provides a summary of the study, implications, and recommendations.

CHAPTER TWO: LITERATURE REVIEW

This chapter provides an overview of findings from past studies and technical reports and other secondary sources on the superyacht industry and global economic trends. The main aim of the literature review is to survey evidence of past studies on the subject to scope out important data collection requirements that can enable reliable and valid research to be conducted. In addition, the literature review helps researchers to familiarise themselves with the existing research before gathering data. Besides, appreciating previous work provides direction for constructing data collection tools, maintain the study within the topic’s perspective and establish a conceptual and contextual framework that can help in understanding data collected before analysis is done.

Global Economic Trends Affecting the Luxury goods industry

Since the end of the global financial crisis, the global luxury goods industry has steadily grown, with average sales in the industry estimated to be more than €1.2 trillion in 2017. It is projected that the industry will grow at an average rate of 3.71 percent between 2017 and 2021 (Capgemini, 2018). The luxury goods industry comprises highly valued goods in terms of pricing. The high prices of these goods are attributed to the fact that they serve as status symbols for individuals, offer high brand recognition and exceptional service. Gollan (2016) indicated that luxury goods are relatively sensitive to economic conditions, such as the financial crisis. There are nine different segments of luxury goods, including personal luxury goods, luxury hospitality, luxury cruises, luxury cars, fine wines, private jets, and yachts, among others. Though luxury cruises experienced the fastest level growth in 2018, yachts segment faced a small decline of 2 percent in the same period. However, sustained growth in key regions is expected to spur upturn in fortunes for yacht sellers. Though the United States and Europe remain the main market for yachts, the Chinese market is experiencing the fastest growth of any market in the world.

The global yacht market is valued at around USD 5.70 billion in 2017 and estimated to reach USD 6.19 billion by 2025.Since 2015. Various reports indicate that the demand for yachts was increasing gradually (Capgemini, 2018). This increase in demand is linked to the growth in disposable incomes of individuals and an increase in the inclination of the wealthy people towards leisure and other recreational activities. Additionally, there has been a growth in preference for personalised services and exclusive traveling. As a result, yacht manufacturers are emphasizing the various luxury features into their offerings to enhance not only their performance characteristics but also the customer experience. The processes involved in yacht building have been improved with more focus on the use of composites in building to enhance yacht corrosion resistance, reduce maintenance costs and improve strength to weight measures (SYBASS, 2019). Due to these advances, Europe was tipped to experience the most significant growth due to the growing number of High-Net-Worth Individuals (HNWI). The growth in the sale of yachts is also linked to the adoption of technologically advanced yachts (Merk, 2017). Though personal yachts are associated with a high total cost of ownership, less costly rental yachts are becoming common in many parts of Europe.

Nevertheless, the yacht market is facing some market challenges. For example, there is stiff competition in the yacht industry due to the presence of several luxury products that are available to wealthy people. Some of the lucrative luxury markets, especially in Europe and North America, are watered down by several products that are labelled as a luxury (SYBASS, 2019). Besides, some consumers may not understand what should be considered to be a luxury product. In this case, they can be persuaded to buy ‘luxury’ products even when they prefer owning a yacht. Some of the key pillars of luxury include quality, design, uniqueness, authenticity, attention to detail, and craftsmanship. Demand for high-value luxury products in Europe could be adversely affected by the unclear relationship between the United Kingdom and the European Union. Some of the consequences of Brexit on the yacht industry include a boost in export revenue for large yacht manufacturers due to weakened pound, potential trade barriers, which could negatively weigh on demand and declining UK demand for yachts. Gollan (2016) indicated that the introduction of tariffs could make imported yachts and yachts relatively expensive to UK consumers.

Consumption of Superyachts

Superyachts are defined as yachts, which are at least 24 metres in length (Global Order Book, 2019). Superyachts allow super-rich individuals to combine adventure, exploration, fun, relaxation, partying, and even business into one moveable palace. Due to multiple comforts and luxury features included in superyachts, they tend to be extremely costly. For example, renting a yacht for 1 week can cost up to USD 1.5 million (even more for the more exclusive yachts), thus making owning a yacht the preferred option of many super-rich individuals (Capgemini, 2018). The average price of a superyacht is estimated to be $30 million. The billionaires prefer this option as it offers greater privacy, comfort, and durability. Meanwhile, downstream industries and the state of the global economy determine the consumption volume of a luxury yacht. Studies showed that uncertainties in the global economy lead to slowing demand for luxury yachts. Superyacht's annual report 2017 highlighted that the market for large yachts of over 24 meters was still undergoing correction after the pre-2008 boom (Wealth X, 2018). The boom was facilitated by easy credit, which led to the problem of a market that was unable to sustain itself when the number of yachts ordered dropped and many shipyards went bankrupt. Since the 2008/9 financial crisis, the demand for yachts has fallen steadily annually. According to ECSIP Consortium (2017), the number of active shipyards fell by more than 15 builders indicating that the market was undergoing a major consolidation.

Nonetheless, recent forecasts painted a promising picture on demand for luxury yachts. Current trends showed a declining growth in the demand for 100-149 ft yachts and static conditions for yachts of 150 ft plus (Montigneaux and Mower, 2019). The expansion of the yacht market and technological advancements led to an increase in the number of manufacturers, with the main ones being Azimut/Benetti, Ferretti Group, San Lorenzo. Globally, there are 4,476 superyachts in operation while the Ultra High Net Worth (UHNW) households are estimated to be more than 200,000 persons implying strong market growth opportunities (Capgemini, 2018). Despite declines in the number of active shipyards, superyacht deliveries have increased steadily since 2017. For instance, 148 superyachts were delivered in 2018 (>24m), which was a little higher than the 2017 and 2016 deliveries. The data indicated that the market is adjusting to the new economic realities and finding its footing as well.

Growth opportunities in the yacht ownership market go beyond the entry-level of super-rich individuals who are worth between $30 and $100 million. The superyacht manufacturers are targeting the 55,000 individuals worldwide who have a networth of more than $100 million (Grand View Research, 2019). In 2018, more than 300 superyachts were delivered to this market, while 455 were on order. According to Wealth-X estimates, these individuals spend more than $20 billion in 2018 on building, sailing, and chartering yachts (Montigneaux and Mower, 2019). Evolution in the tastes of these millionaires is fuelling the building and chartering of superyachts. These millionaires want their yachts to have saunas, steam rooms and extensive fitness equipment, wine cellars, and media rooms, among other popular amenities. Large yachts are also preferred for holding parties for friends and families. Capgemini (2018) also indicated that the sale of yachts is highly correlated to consumer confidence. In this regard, yacht sellers should provide appropriate and valuable information to prospective and existing consumers in a manner that does not erode their confidence. One must note that the new generation of Ultra High Net Worth Individuals (UHNWI) prefer rare and customised experiences that are replicable. In this case, uniqueness, privacy, and personalised services are highly sought after by this group of consumers. Given that the average price of a superyacht is US$100 million, this luxury product is exclusively dedicated to the ultra-wealthy members of the society (Pendleton & Warren, 2018).

Apart from the massive wealth of the owners, consumers are also looking for unique experiences during travel while also having a desire for privacy. According to studies undertaken on the state of global wealth, luxury, and yachting, this was shown to influence the ownership decisions of the wealthy (Cappato, 2011). This new knowledge pushed consumers to connect with the builders and sellers for future purchases. Other than strengthening global economic status and market, studies also identified several trends that were influencing consumer decisions in the yachting industry. First, the ultra-wealthy are seeking to travel to remote locations, such as Galapagos, Antarctica, and lesser-explored areas of Asia, thus the need for ice-breaking class hulls and yachts with larger fuel capacities. Second, contemporary superyachts are bucking the usual trends and are becoming less conventional with more open plan layouts. There is also a desire to create a direct and intimate experience of the sea. Third, toys and entertainment tools, such as jet skis, water skis and canoes have become staple components of modern yachts (Wealth X, 2018). Consumers are also demanding that yachts should have cinema rooms. Finally, there is a greater focus on health and wellness during long distance travel. The yachts should, therefore, be built in a manner that does not compromise the health of passengers.

Competitiveness of the Superyacht Industry

The overall production of yachts and recreational crafts reached its peak in 2008 and fell by more than 12 percent after the onset of the financial crisis. By 2013, the industry began to experience some rebound with the overall value of the industry in Europeto increase demand for yachts, significantly rising to around € 6.5 billion (ICOMIA, 2013). Some of the countries that witnessed a significant increase in yacht production included Italy, Netherlands, France, Germany, UK, and France. Furthermore, the Baltic States and Poland also gained considerable market share as some production activities were shifted to Scandinavia. Nonetheless, one cannot ignore the fact that the 2008 economy enormously affected the position of Europe in the global recreational craft industry. The economic downturn led to the collapse of several yacht manufacturers. Furthermore, the crisis put the profitability of the industry under massive pressure. Since 2010, the United States market seems to be taking the lead in yacht manufacturing (ICOMIA, 2013). The leadership of the US yacht industry is attributed to its fast recovery, however quality issues and brands with limited history mean the US industry mostly serves US clients. Meanwhile, the EU yacht industry has been able to attract investors from other parts of the world, including China. This implies that brands, such as Group Bénéteau (France), Sunseeker (UK), Lurssen (Germany), Feadship (Holland), Azimut-Benetti (Italy), Ferretti (Italy), Princess (UK), Bavaria Yachtbau (Germany), and Hanse Group – including Sealine (Germany) are still desirable in the international market.

Despite the recent upturn in the economic fortunes of the yachting industry, it is still evident that the industry needs to adapt to the changing circumstances that led to the booming market of the 80s and 90s. One approach that yacht builders are expected to adopt is consolidation as small, family-owned businesses continue to find it hard to compete. Sasso (2019) indicated that consolidation is the perfect approach that will ensure that the industry fully recovers from the effects of the financial crisis and recession that followed. Furthermore, there is a need for the yachting industry to focus more on value addition, standardisation of processes, and harmonisation of various business requirements. The industry can also become more competitive by minimising international trade barriers, such as import taxes – although most owner register their vessels in tax haven’s and immediately export vessels from the countries they’re built in. The fast-changing yacht market means that shipyards must evolve into stronger, larger, and more modern organisations. One must acknowledge the fact that younger and new clients flood the contemporary yacht market with totally different lifestyles and expectations compared to pre-2008 clients. Besides, the share of global wealth is shifting geographically as emerging markets, such as China and other Asia Pacific nations, become stronger (Chen, Balomenou, Nijkamp, and Poulaki, 2016). To compete effectively, a structured organisation coupled with huge investments in new technologies, infrastructure, and marketing will be needed.

The Conclusion to the Chapter

The goal of this chapter was to explore the past studies and reports presented on the issue of global economic trends and the superyacht industry. The review found that the entire luxury consumption industry was adversely affected by the global economic crises of 2008/9. During this time, the demand for yachts significantly dropped as potential clients suffered a reduction in the value of their wealth. In addition, the financial crisis made it very hard to access credit to facilitate luxury purchases. However, from 2012, the yacht industry has been bouncing back gradually buoyed by steady economic growth in the United States and emerging economies and low interest rates, especially in Europe. These trends prove that economic activities are important influencers of superyacht consumption. The research also determined the effect of the increase in billionaires, new build construction, and the refit market as well as predicting the future of the superyacht industry.

CHAPTER THREE: RESEARCH METHODOLOGY

The objective of this study was to assess the competitiveness and economic trends influencing the superyacht industry. This study intended to determine the primary factors, which were impacting the competitive performance of the superyacht industry around the world and provide appropriate recommendations that can ensure the sustained competitiveness of the industry. This chapter explains the process of conducting the study, including data collection and analysis, and how the data was presented.

Research Strategy

The research follows applied research procedures. Generally, applied research aims at finding solutions to immediate problems facing the industry, organisation, or society as a whole. Unlike applied research, fundamental research is more concerned with generalisations and formulation of theories. Applied research suggests measures and interventions that would solve specific problems that the industry may be facing (Kothari, 2008). This dissertation evaluates how the changes in the numbers of HNWIs could impact the performance of the superyacht industry and what can be done to improve the situation. However, the main weakness of this approach is that the findings cannot be generalised or cannot be used to formulate a theory. This research approach relies on the presence of previous academic research or technical reports on the performance of the superyacht industry and wealth dynamics around the world. In this regard, this paper should expand knowledge on the existing information regarding the wealthy individuals and the development of superyachts.

Research Method

Currently, there are few studies regarding the wealth and superyacht industry. Due to limitations regarding data volumes, the study adopted a mixed research method. The mixed research method encompasses both qualitative and quantitative methods. Qualitative research is the most appropriate method for small samples and where the variables are not measurable or quantifiable. In this paper, the focus of the research is to discuss growth in the wealth and performance of the superyacht industry. The paper also discusses how economic trends could be influential to the future of the industry in general. The main advantage of the qualitative research method is that it allows for a complete description and analysis of the research project. Furthermore, unlike quantitative studies, this method does not limit the analysis ofthe nature of the participants’ responses (Kothari, 2008). The main weakness of the qualitative approach is that the results cannot be perceived to reflect the opinions of the wider population.

Conversely, quantitative research measures and describes the entire society or industry and all the elements, which are part of it. Quantitative methods provide necessary information about the industry. For instance, it is only through quantitative methods that a researcher can measure changes in wealth creation and performance of the superyacht industry in specific regions, such as North America, Europe, and the Asia Pacific regions. The quantitative data can be obtained from wealth reports and economic analysis papers. The mixed research method combines the complementary strengths of qualitative and quantitative studies, thus allowing for a better understanding of global economic trends and how they impact the superyacht industry as a whole (Bajpai, 2011). This approach also provides an opportunity to derive emergent insights into the study topic and merge multiple perspectives.

Research Approach

To achieve the purposes of this study, the paper followed an inductive approach. Inductive research approach begins with a specific observation about a phenomenon, in this case, wealth growth and demand for superyachts, as highlighted in the literature. After this observation, the paper formulates a generalised theory or conclusions based on the gathered data. This approach is effective for the mixed research method as it takes into account the context of active research and small samples associated with qualitative data (Kothari, 2008). The main weakness of this approach is that the generalised theories and conclusions are based only on a small sample, and the reliability of the results can be called into question.

Data Collection

Data used in this study is secondary data from past studies and the latest reports on global wealth and the superyacht industry. Basically, secondary data encompasses data gathered from literature, documents, and articles about the research topic (Bajpai, 2011). Secondary data is collected from books, industry reports, and other internet sources to provide a better insight into the global superyacht industry due to limited access to primary data sources.

Data Analysis

The data in this study was analysed using both content, and descriptive analysis approaches. Content analysis is used to evaluate opinions and qualitative views regarding the topic. The content analysis helps to identify various issues that influence wealth creation and the ability of prospective clients to purchase or charter superyachts. The approach helps in describing various economic trends that have an impact on the superyacht industry (Bajpai, 2011). On the other hand, descriptive statistics, such as tables, charts, and figures, are essential in measuring the extent of influence certain economic factors hold on the superyacht industry. Descriptive statistics can also help to explain the argument that wealth creation is linked to the performance of the superyacht industry.

Challenges and Data Limitations

While research methodology is designed to ensure that the findings and conclusions are as accurate and representative of the study population as possible, it is important to note that there are specific limitations when evaluating issues surrounding the wellbeing of people and their tastes and preferences. In many cases, these issues are influenced by factors that cannot be quantified; thus, the evidence supporting certain conclusions may not be validated (Kothari, 2008). Furthermore, on issues regarding consumer tastes and purchasing decisions, many studies indicated that it can be difficult to determine causal relationships among various scholars. In this regard, this paper only serves as an attempt to analyse the link between wealth and the superyacht industry.

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Details

Seiten
41
Jahr
2020
ISBN (eBook)
9783346311733
ISBN (Buch)
9783346311740
Sprache
Englisch
Katalognummer
v961658
Institution / Hochschule
Kenyatta University
Note
A
Schlagworte
effects superyacht industry

Autor

  • Autor: undefined

    Difrine Madara (Autor)

    13 Titel veröffentlicht

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Titel: The Effects of changes on the number of high networth individuals on the Superyacht Industry