The New Epicenter of Value

L2 explores recent decades' epicenters of value creation and predicts a new epicenter for the coming decade: Unprecedented global demand for luxury driven by the combination of an emerging middle class and extraordinarily swift mobile device adoption in developing markets.

The emerging middle class in developing markets coupled with mobile device adoption have created a new epicenter for shareholder value creation among luxury firms.

In the 1990s more shareholder value was created within a seven-mile radius of San Francisco International Airport than had been created in Europe since World War II.

This boom was largely driven by the plummeting price of processing power, and adoption of WinTel platform and the Netscape browser.

By the middle of the decade Bill Gates, the American founder and CEO of Microsoft, had become the world's wealthiest person.

Throughout the course of the 2000s, the epicenter of wealth creation shifted to commodities. This shift was driven by insatiable demand from emerging markets. The new epicenters were iron ore mines in Perth, sugar and soybean farms in Brazil and oil fields in the Gulf.

By the end of the 1990s, of the world's ten wealthiest people, nine were American one was Swiss, and just one -- Philip Anschutz -- had significant financial interests in commodities.

A decade later, three of the world's ten wealthiest people were from the developing world and had created their wealth from oil, mining, and steel production. The world's wealthiest man is now, reportedly, Vladimir Putin

Our view is that the epicenter for wealth creation over the next ten years will be among prestige brands in tier 2 cities of developing markets, and in the palm of an emerging middle class consumer.

During the past fifteen years the addressable global market for luxury has increased by 300 million consumers. Over the next fifteen years this market is predicted to grow by 600 million consumers.

Most of this growth will be driven by consumers in emerging markets. These new luxury consumers will be young, digitally native, and expect to engage and purchase brands via smartphones and tablets.

At L2 we believe this demand translates to an unprecedented opportunity for prestige brands who embrace emerging platforms and establish expertise regarding the nuance of a younger consumer and developing markets.

In our view brands including Benefit, Sephora and Burberry stand to outperform their peer group given their deft moves in these markets and facility with mobile. The perfect storm of 600mm new consumers, mobile and an affection for western luxury brands will mean a new epicenter, and new icons, will emerge over the next 10 years.