Download The economic and financial contribution of high-end

The economic and financial contribution
of high-end creative and cultural
industries to the UK economy
A FRONTIER ECONOMICS
REPORT FOR WALPOLE
September 2015
Contents
The economic and
financial contribution
of high-end creative
and cultural industries
to the UK economy
Executive Summary
4
Introduction
6
1.1
Approach and methodology
6
1.2
Structure of this report
6
The key features of the high-end creative and cultural industries
8
Key principles and features
8
1
13
Figure 1
Annual value
2
of sales for all
2.1
sectors, 2010-2013,
in £ millions
5
3
Key economic and financial indicators
12
3.1
Overall performance
12
3.2
Export performance
13
4
Employment
14
5
Financial contributions to the exchequer
15
6
Capturing the wider economic effects
16
Table 1
Key performance
indicators
12
Table 2
Value of sales by
6.1
Main types of wider effects
16
category, 2013
6.2
Travel and tourism
16
6.3
Employment and knowledge
19
15
6.4
Clustering effects
20
Table 3
6.5
Public goods related to the value of place
21
7
Forecast trends
22
8
Policy implications
24
Financial
contributions to the
exchequer, 2013
Sponsored by
Produced by
23
8.1
Intellectual Property
24
Table 4
8.2
Digital governance
24
Projected
8.3
Selective distribution
25
performance
8.4
Market access
25
to 2019
8.5
Visa facilitation and airport capacity
25
8.6
Skills and vocational training
26
3
Executive Summary
Walpole is the UK’s alliance of luxury brands representing
As impressive as they are, these figures understate the
over 170 member companies from the high-end creative
full economic contribution of the sector. This is because
and cultural industries with members including Alexander
they do not capture the value of the significant spill over
McQueen, Burberry, Claridge’s, Harrods and Rolls-Royce
effects to the British tourism and travel industries or the
Motor Cars. Walpole members strive for the highest
employment and knowledge spill over effects to upstream
quality in all they do – their business models are based on
suppliers that support the development of skills-based
culture, craftsmanship, creativity, continuous innovation,
clusters and the manufacturing capability of the UK.
INDICATOR
VALUE
Value of sales (2013)
£32.2 billion
Value as percentage of UK GDP
2.2%
Rate of growth 2010-2013
7.8%
Estimated direct and indirect employment (2013)
113,000 employees
Total exports 2013
£25 billion
Direct and indirect financial contributions to exchequer
£5.2 billion
TABLE 1: KEY PERFORMANCE INDICATORS
a relentless focus on quality, customer service, highlyThe high-end creative and cultural industries make a
clusters. Importantly the high-end cultural and creative
Protection of Intellectual Property
significant contribution to the British tourism and travel
industries make a significant contribution to developing
To ensure that the high-end industries are able to
Walpole with the support of Charles Russell Speechlys
industries through the international appeal of luxury
and promoting the manufacturing quality and capability
differentiate their products, continue to invest in innovation
has commissioned Frontier Economics to carry out a
brands and experiences as well as “Shopping Tourism”
of the UK.
and development as well as their brands and businesses
study examining the contribution to the UK economy
which attracts visitors from around the world to the UK.
of those sectors creating high-end consumer products
Furthermore investments made by the high-end industries
The research commissioned by Walpole highlights the
and services. Walpole is pleased to report that the UK’s
into their brands, digital communications, marketing,
value that the UK as whole would continue to derive from
Digital Governance
high-end creative and cultural industries have performed
retail experiences and surrounding environments only
ensuring a suitable policy framework is in place to enable
To ensure that responsible online marketing practises as
strongly in the period between 2010 and 2013, with
serves to increase the international profile, reputation
the high-end creative and cultural industries’ business
well as a general Duty of Care on online service providers
particularly strong growth since 2012. Key performance
and appeal of the UK further benefiting the tourism and
models to flourish.
are recognised and upheld, as well as policies relating to
indicators are set out in the table opposite.
travel industries.
skilled employment and strong export abroad.
with the surety that IP rights will be upheld.
the recognition of selective distribution and counterfeiting.
The key elements of such a policy framework are detailed
The high-end cultural and creative industries also
by the sectors grew by a little over 25.4% in the period
make a valuable contribution to employment, creating
2010 to 2013.
jobs, opportunities to work in dynamic and creative
Selective Distribution
and expand internationally through trade agreements and
environments, providing training and apprenticeships
To ensure that the goods and services are distributed in
diplomatic relationships with key markets.
Even on relatively conservative assumptions, the sectors
as well as sustainable careers, currently employing over
an appropriate way. To maintain the aura of the product
are forecast to continue their rapid growth in the medium
100,000 people directly in the UK. Furthermore, spill
or experience, enabling enhanced levels of service and
Visa Facilitation and Airport Capacity
term. Forecast value of sales for 2019 is between £51.1
over effects created by the high-end industries benefit
customer confidence as well as supporting commercial
To enable the high-end industries to attract high-spending
billion and £57 billion, while forecast employment is
upstream suppliers, mostly other SMEs, developing
imperatives.
visitors to the UK from key markets including China and
between around 158,000 and 177, 000.
skills, knowledge, as well as expertise and skills-based
4
below:
Market Access
In nominal terms, the value of goods and services produced
To ensure that high-end industries can continue to export
the Middle-East.
5
1.
Introduction
Frontier Economics has been retained by Walpole to
1.1 APPROACH AND METHODOLOGY
estimate the economic contribution of high-end creative
While the economic importance of high-end cultural and
and cultural industries to the UK economy. The analysis
creative industries has been recognised, data collection
follows the work conducted by Frontier Economics in
by official sources on the activities of these industries has
2014 for the European Cultural and Creative Industries
yet to be undertaken. In particular National Accounts data
Association (ECCIA) of which Walpole is a founding
are insufficiently disaggregated to capture the high-end
member, which measured the contribution of these
elements of the different activities concerned.
industries to the European economy. The key metrics of
interest in that study, and which are reported in this study,
Consequently, the approach used in this report draws on
were: total earnings; direct and indirect employment
the approach used in the report prepared by the ECCIA, and
associated with the industries; exports; and contributions
uses reported results at the firm- and industry-level as
to the exchequer.
the starting point of the analysis. The data sources include
specialist sources, company sources (such as annual
The ECCIA report defined the high-end creative and cultural
reports and financial statements), and industry survey
industries according to a 12-sector classification that
data (notably data prepared by EuroMoney as part of its
captured the range of activities across Europe as a whole.
annual survey of certain luxury sectors). Methodological
The classification for the UK reflects the composition of
issues relating to specific indicators are discussed in the
high end creative and cultural activities in the UK. The
relevant sub-section below.
The UK’s high-end creative and
cultural industries have performed
strongly and are worth £32.3bn to
the British economy and employ
113,000 people directly and
indirectly in the UK
sectors concerned are:
1.2 STRUCTURE OF THIS REPORT
• Designer Apparel and Footwear
The report is structured as follows:
• Fine Wines/Champagne and Spirits
• Section 2 - describes the key features of the high-end
• Luxury Accessories
creative and cultural industries
• Luxury Jewellery and Timepieces
• Section 3 - reports the economic and financial indicators
• Luxury Hotels
• Section 4 – reports the employment effects
• High-end Beauty and Personal Care
• Section 5 – reports the contributions to the exchequer
• High-end Car Manufacturing
• Section 6 – captures the wider economic effects
• Art de la table (e.g. glasswear)
• Section 7 – describes the forecast trends
• Yachts
• Section 8 – reports on the policy implications
6
7
2.
The key features of the high-end
creative and cultural industries
The unique business model of the UK high-end creative and
2.1.2 Creative people and craftsmanship
the luxury industries are built for the long-term and these
the market. In this context, innovation and creativity in the
cultural industries is based on a number of key principles
The market positioning of luxury products relies on
arrangements, spanning many years, are a distinctive
high-end industries take a different form to innovation in
and features.
maintaining high levels of creativity, craftsmanship and
feature of the luxury cultural and creative industry supply
a number of other industries. In these other cases, cost-
quality which is determined by two key factors – the
chain (that distinguish them from premium and mass-
efficiency gains are important drivers of competitiveness,
development and nurturing of creativity and craftsmanship
market manufacturers).
and are thus the focus of process innovation. However,
2.1 KEY PRINCIPLES AND FEATURES
both in a highly skilled workforce and the supply chain.
2.1.1 Aura
cost-efficiency gains are of secondary importance to
In particular, luxury manufacturers do not favour high-
high-end cultural and creative industries. The focus of
The aura of luxury relates to the quality of the product and
The leading luxury brands all invest heavily in attracting
frequency procurement from upstream suppliers, which
innovative activity is for the consumer and is focused on
the perception of status and exclusivity that is associated
and developing creative talent and furthermore in training
is based solely on cost considerations, and instead value
materials, design and product quality and the overall
with it, both in the eyes of the consumer and, significantly,
and developing their skilled workforce, as well as in
the importance of predictability of quality and the specific
experience.
amongst the wider public.
developing world-class manufacturing facilities. The role
skills born out of a long-term relationship with a particular
of the creative director and the creative teams for the high-
supplier. The advantage of these long term arrangements
2.1.4 Selective distribution
This aura, combined with the craftsmanship involved
end industries is essential to the overall business success.
is a virtuous circle – reducing search costs and in turn
The way in which distribution is organised is key to high-
in creating it and the associated customer service
Finding those creative visionaries, talented designers and
increasing the incentives for upstream suppliers to maintain
end cultural and creative industries since, as observed
constitutes the key point of competitive differentiation
marketers requires considerable investment and time and
quality and to innovate. Such relationships also ensure the
above, it is a mechanism through which the aura of the
for luxury cultural and creative industries compared to
in very few other industries does creativity play such a
transfer of knowledge and skills to the next generation.
product is communicated. Moreover, the retail experience
other industries.
key role in the future success of the business.
is an integral element of the bundle of goods and services
2.1.3 Intellectual Property and innovation
purchased by the consumer. Key concerns of high-end
The aura in part draws on the cultural and traditional
Complimentary to the role of creativity, the role of
Research, product development, innovation, unique skills
cultural and creative industries include pricing strategies
heritage in relation to the product’s provenance and the
craftsmanship and a highly-skilled workforce of artisans
and methods and brand identity are key components of the
– in particular, luxury cultural and creative industries
fact that this heritage acts as a signal of quality. The
is essential to ensure the highest standards of production
value proposition to consumers of high-end cultural and
do not favour price-discounting since that can adversely
consumer is aware that when purchasing a product, he or
and quality. The high-end industries make significant
creative industries. Furthermore, they are a key source
affect the aura of the product. High-end cultural and
she is accessing this tradition of heritage and creativity. An
investment into providing formal training, apprenticeships,
of their competitive advantage and as such Intellectual
creative industries will also be concerned about the level
important factor behind the “aura” of luxury industries lies
courses and qualifications as well as partnerships with
Property (IP) and IP protection plays a vital role in the
of promotional effort and customer service and care.
in the retail service provided to the consumer through, for
tertiary institutions.
business model. The protection of IP is also central to
example, personalised attention and after-sales care. The
securing long term investment in innovation and creativity
As with all industries, high-end cultural and creative
both in products and in processes.
industries face a choice of managing distribution through
competitiveness of luxury cultural and creative industries
In particular, firms in the luxury cultural and creative
therefore depends on its ability to provide and control the
industries invest substantial resources into screening
combination of a luxury product, how it is bought with the
and building relationships with the highest quality
More broadly, innovation and creativity are central to
facilities), or through selective distribution contracts with
highest level of service.
suppliers. As a result, many supplier relationships in
ensuring the product positioning of high-end producers in
retailers, who may stock multiple brands. In practice,
8
vertically integrated structures (i.e. wholly-owned retail
9
a variety of arrangements are observed, even within
2.1.5 Orientation towards global markets
the same firm. These reflect, principally, differences
The UK’s high-end cultural and creative industries have
in ways in which firms weigh the trade-off between
actively drawn on their heritage, provenance, long-
the commercial risks of managing retail operations
standing traditions of craftsmanship, creativity, style
(which may not lie within the core competences of the
and perception of high-standards and exceptional quality
firm) and the risks associated with loss of control over
to export to global markets. In recent years, the high-end
retail operations. As such selective distribution is vital
cultural and creative industries have achieved strong
to maintain control over the value chain and thereby
growth in affluent and aspirational customer segments
ensure excellence from the creation of the product to
in emerging market, notably in South America, East and
the relationships with the clients.
South East Asia, Europe, the Middle East, and parts of
Western and Southern Africa.
Recent research in the ECCIA study suggests a trend
towards greater direct control: the share of direct retail in
While exporting to these markets is an obvious mechanism,
the EU is projected to increase from 31% to 40% between
a substantial proportion of sales to customers in these
2013 and 2020, even though multi-brand wholesale and
markets occurs through travel and tourism i.e. customers
department wholesale are set to remain important
from these markets travelling to the UK to purchase these
channels too. The share of online sales relative to overall
products as an integral part of their travel experience. This
personal consumption is projected to increase, in the EU
has given rise to the phenomenon of “Shopping Tourism”.
from under 5% in 2013 to 14% by 2020.
The UK’s high-end creative and
cultural industries are forecast to
continue their rapid growth in the
medium term. Forecast value of sales
for 2019 is between £51.1 billion
and £57 billion, while forecast
employment is between 158,000
and 177, 000
The UK’s high-end creative and
cultural industries are growing
at a rate of 7.8%
10
11
3.
Key economic and
financial indicators
3.1 OVERALL PERFORMANCE
As of 2013, the high-end industries in the UK were valued
at £4.1bn and then Luxury Hotels accounting for £2.3bn.
A significant factor explaining this performance was growth
3.2 EXPORT PERFORMANCE
at approximately £32.2 billion, as reported in Table 2
The total value of the high-end industries is equivalent to
in luxury car sales, at a little over 11% per year over that
The UK’s high-end cultural and creative industries are, as a
below which provides a breakdown by sector of the high-
around 2.2% of UK GDP in 2013 at market prices. Figure
period. Other sectors grew at just under 4% per annum
whole, strongly export-oriented, with 78% of production, in
end cultural and creative industries including Designer
1, opposite, depicts value of the sales on a yearly basis
over the same period, and just under 5% between 2012
value terms, destined for overseas markets (i.e. around £25
Apparel and Footwear, Accessories, Jewellery and
for the years 2010 to 2013.
and 2013. The fastest growing sectors in this other group
billion in 2013). This is largely in line with the performance
were luxury travel goods, and accessories, which grew at,
reported for these industries for Europe as a whole.
Watches, Hotels, Beauty, Automotive and Marine. The
figures show that car manufacturing accounts for over
Over that period, the sectors as a whole grew at an annual
half the value of the high end industries (which is in line
rate of 7.8%. Year on year growth between 2012 and 2013
with figures reported for Europe as a whole) with the next
was 9.6%.
largest category being Designer Apparel and Footwear
respectively, 6% and 7% per year over the period 2010-2013.
Export intensities vary across sectors as a whole. Luxury
By way of comparison, nominal GDP growth in the UK
cars have the highest export intensity, with between
between 2010 and 2013 was on average 3.2%
85% and 90% of production (by value) sold in overseas
markets. At the other end of the spectrum, luxury wines
are mainly destined for the UK market, with around 18%
CATEGORY
TURNOVER 2013 (GBP BILLION)
Designer Apparel and Footwear
4.13
Fine Wines/Champagne and Spirits
1.84
Luxury Accessories
1.35
30
Luxury Jewellery and Timepieces
1.44
25
Luxury Hotels
2.32
20
Super Premium Beauty and Personal Care
1.29
15
Car Manufacturing
18.3
10
Art de la table
0.90
5
Luxury Yachts
0.50
TOTAL
32.2
of production by value exported. The high-end cultural
and creative industries accounted for around 4.3% of total
UK merchandise exports in 2013.
35
TOTAL EXCL CARS
Year-on-year export growth in 2013 was around 12.1%, a
CARS
rapid increase attributable mainly to a strong performance
in the luxury car sector. Excluding cars, export growth was
slightly over 4.5%. Both figures are higher than reported
growth for UK merchandise exports as a whole over the
same period (3%). For the period 2010-2013, exports from
the industries as a whole grew by just over 9% per year.
0
2010
2011
2012
2013
FIGURE 1: ANNUAL VALUE OF SALES FOR ALL SECTORS,
TABLE 2: VALUE OF SALES BY CATEGORY, 2013*
12
2010-2013, IN £ BILLIONS
*
Source: Frontier Economics calculations based on Bain data, Euromoney data, and published financial statements
Source: Frontier Economics calculations based on Bain data, Euromoney data, published annual reports and ONS data
**
13
5.
Financial contributions
to the exchequer
4.
Employment
The high-end creative and cultural sectors contribute to
employment directly and indirectly. The direct contribution
is attributable to jobs in firms within each of the sectors.
The methodology for estimating employment figures is
to apply turnover to employment ratios for each of the
sectors. The ratios themselves have been derived from
The UK’s high-end creative and
cultural industries employ over
113,000 people directly and
indirectly in the UK
The financial contributions made by the industries are
The figures for avoided benefit payments rely on
summarised in Table 3, below, which shows that in 2013, the
assumptions about the duration of unemployment faced
industries contributed around £5.2 billion. The contributions
by employees in the sectors, should they lose their jobs.
consist of tax payments, and avoided costs to the exchequer
The probabilities regarding the duration of unemployment
in the form of unemployment benefits not paid as a result
are based on findings made by the OECD. We adjusted
of the employment created by the industries.
these probabilities downward to reflect the fact that the
data reported by firms, and industry sources. There is
OECD numbers were averages, and that employees in
some variance in the data reported for employment figures,
Corporation tax calculations are based on assumptions
high-end cultural and creative industries were more likely,
and hence for employment ratios. On the basis of the
about company profit margins. These assumptions were in
compared to the average employee, to find employment,
available evidence, we estimate that:
turn based on published financial statement and industry
given their skills and training.
• Total direct employment is estimated at approximately
101,300 jobs in 2013
• Employment growth averaged around 12.6% per year
in the period 2010-2013
estimate. Data from national accounts usually allow some
reports. Income tax revenue is based on assumptions
measurement of supply chain linkages and associated
regarding average wages for the sector, drawing on
jobs, but in this case measurement is complicated by the
ONS data.
fact that national account data is not disaggregated to the
level of high end cultural and creative industries as defined
• Employment data provided by the ONS suggests that
in this report. Using data derived for the EU as a whole,
815,000 jobs were created in the UK in the period 2010-
and assuming that the relationships between direct and
2013, suggesting that the high-end cultural and creative
indirect jobs in each of the UK sectors are similar to those
industries accounted for around 3% of jobs created in
exhibited in these sectors across the EU, we estimate
that period
that the high-end sectors indirectly generated a further
10,000- to 12,500 jobs in total in 2013.
The indirect contribution is attributable to the supply chain
linking firms within the sector to upstream suppliers and
Therefore the combination of direct and indirect employment
to downstream operators. These are more difficult to
accounts for approximately just under 113,000 jobs.
ITEM
AMOUNT (£MILLIONS)
Corporation tax revenue (21%)
1,517.00
National Insurance Contributions
334.9
Income Tax Revenue
448.5
Savings from avoided benefit payments
2,889.1
TOTAL
5,189.5
TABLE 3: FINANCIAL CONTRIBUTIONS TO THE EXCHEQUER, 2013
14
*
Source: Frontier Economics calculations based on industry reports, OECD data, and ONS data.
15
6.
Capturing the wider
economic effects
6.1 MAIN TYPES OF WIDER EFFECTS
As documented in the work Frontier Economics conducted
for ECCIA on high-end cultural and creative industries,
any account of the true economic contribution of these
high-end industries needs to take into account the wider
economic effects or spill overs to Travel and Tourism,
Employment and Knowledge, as well as clustering and
public goods that are generated by these industries.
Spill overs reflect the effects that decisions made by
“As impressive as the financial
figures are they understate the full
economic contribution of the sector
to the UK, and the significant spill
over effects to the British tourism
and travel industries.”
consumers and businesses in one sector can have on
The first channel is through decisions made by consumers
Shopping Tourism is also prevalent in locations,
of high-end goods and services to purchase particular
primarily major cities that have clusters of firms creating
high-end products as part of their travel experience. Recent
concentrated high-end shopping experiences (for example
research by Altagamma (a member of the ECCIA) suggests
locations such as Bond Street or Mount Street in London.)
that globally, around 37% of purchases from luxury
This is valuable to shoppers, principally because it
industries are attributable to tourists. An example of this is
reduces search costs, reduces travel time, facilitates
found in the phenomenon of “Shopping Tourism”. Shopping
comparisons of price and quality, and allows them to
Tourism is defined by the UN World Tourism Organisation
match products that, in their view, are complementary (for
as a “form of tourism fostered by individuals for whom
example, different articles of clothing and footwear from
purchasing goods outside of their usual environment is a
different producers). This is a reflection of agglomeration
determining factor in their decision to travel”. It follows
or clustering effects, which are covered in subsequent
from this definition that attractive destinations for shopping
sections. While price factors (notably differences in tariffs,
tourists will be ones that can provide access to an overall
exchange rate and indirect taxes) are among the drivers of
shopping experience, which includes access to high quality
Shopping Tourism, important considerations include the
products, a choice of desirable brands, retail environments,
assurance that goods are not counterfeit, the clustering
the associated status of shopping in a particular destination
of stores that increase choice, the quality of service, the
and the highest levels of service.
status conferred by particular brands and purchasing
another. These spill overs may be positive or negative,
those brands in particular origin locations, and the overall
but their defining feature is that they are not managed
In terms of the UK we can see evidence of Shopping Tourism
through formal arrangements (such as contracts). For
in the data from Global Blue tax free sales - in 2014 the
attractiveness of the setting.
example, a hotel may invest in upgrading its facilities
A public good is a good or service from which it is not
top sources of purchasers of tax free sales in the UK were
One of the implications of Shopping Tourism, and specifically
making it more attractive to customers. This may attract
possible to exclude a person or group of people from
consumers from the Middle East 28%, China 25% with
the fact that shopping experiences are a determinant
more customers, who then consume the services of
enjoying, once it is provided; and which the enjoyment by
Russian and USA travellers accounting for respectively
for travel, is that the tourism and travel industries in a
neighbouring businesses. This is a positive spill over
one person does not diminish the possibilities of somebody
4% and 3%. Furthermore according to Global Blue, 50% of
particular location will grow faster, the more potential
from the hotel to neighbouring businesses. Thus the
else enjoying it. Clean air is one example of such a good.
luxury sales (hard luxury relating to apparel and fashion,
visitors value the shopping opportunities in that location.
cosmetics and perfumes, watches and jewellery) are tax
Consider for example the international appeal of Bond
refunded and as such attributable to tourist shoppers.
Street or Harrods in London, staying at Claridge’s or
latter benefit from the hotel’s investment decision, even
if they did not enter into a contract with the hotel to pay
6.2 TRAVEL AND TOURISM
for the investment.
One of the most significant wider benefits of the high-end
visiting the whisky distilleries and castles in Scotland for
industries is the spill over effects to travel and tourism.
international visitors. This logic is reflected in the marketing
Clustering effects arise because of positive spill overs of
There are two distinct ways through which spill over
initiatives of tourism authorities which have deliberately
the sort referred to above. For example, high-end retailers
benefits occur.
emphasised the shopping and associated experiences
are likely to find it attractive to locate closer to high-end
• Consumption by travellers of high-end products
available in key major cities or areas in order to attract
hotels, and vice versa. Moreover, a business may benefit
which account for a significant share of the overall
tourists. Other specific initiatives are promoted based on
from the pull of neighbouring businesses, even if the
consumption of these products and services.
latter are rivals. This is because customers often wish
• The availability of high-end products and services as a
to compare prices and services, and this is more easily
determinant of choice of destination and thus making
done if businesses are located close to each other.
particular locations more attractive to tourists.
16
Globally 37% of purchases from the
luxury industries are attributable
to tourists
recognition of the links between these particular activities,
and the profile they lend to the city such as London Fashion
Week or Design Week or shows such as Masterpiece.
17
These observations in turn suggest that investments
development by increasing the attractiveness of the UK
undertaken by firms in the high-end cultural and creative
for tourists.
industries that enhance the attractiveness of their product
offerings, have significant spill over effects to the tourism
However, while the benefits and wider spill overs to the
and travel industries, and that these industries would
UK economy are clearly visible this account is not the
have been smaller, along with their contribution to the
full picture as the UK continues to be at a disadvantage
wider economy, without the investments undertaken
to European countries such as France, due the current
by the luxury cultural and creative industries. In other
visa system for Chinese visitors. The importance of the
words, these investments can be said to have a genuine
Chinese customer is well documented - globally, according
multiplier effect to other industries and on the economy.
to data reported by the Economist, Chinese consumers
accounted for around 29% of global purchases of high-end
The high-end creative and cultural
industries are a major contributor to
employment in the UK, employing
over 113,000 people directly and
indirectly, providing employment
opportunities, training and
sustainable careers for people
across the UK and importantly
in areas outside of London
In 2014, prestigious shoe makers Church’s laid out plans to
expand their Northampton business, adding a further 140
jobs to their existing operation of around 650 highly skilled
employees, making them a leading employer in the region.
Church’s commitment to preserving specialist skills and
ensuring that they are passed onto the next generation
of apprentices, is characteristic of the contribution many
regional high-end employers make to providing sustainable
careers that boost local economies. Likewise, Burberry’s
Castleford factory in West Yorkshire, which manufactures
the brand’s iconic trench coat, employs around 600 skilled
The spill overs described above are a result of the private
products, of which two-thirds took place outside China.
workers and also runs a training scheme for apprentices,
consumption of luxury goods, but a second type of spill
One study suggested that shopping was a vital part of a
over effect stems from the enjoyment of the public goods
trip for nearly 82% of Chinese tourists. Another reported
associated with high-end cultural and creative industries.
that 68% of Chinese travellers surveyed spent between
funding doubled the size of the UK factory in Bridgewater,
These are usually associated with enhancements to the
21% and 50% of their travel budget on shopping. According
Somerset and created 300 new jobs in the area.
attractiveness of locations. In a report on the linkages
to data from the UK China Visa Alliance (UKCVA), the UK
between tourism and cultural industries, the OECD
is losing £1.2bn annually due the current visa process
Due the type of employment and the necessity for highly-
observes, specifically in relation to design activities, that
which is overly onerous on Chinese visitors, who instead
skilled craftsman, the high-end industries provide
“Urban design adds to the atmosphere of places, making
opt to visit the European capitals under the Schengen
6.3 EMPLOYMENT AND KNOWLEDGE
opportunities for both young people through training and
them more attractive to local residents and tourists alike”.
visa. The UKCVA (of which Walpole is a founding member)
In addition to the spill over effects conferred on travel
apprenticeship programmes and also provide sustainable
Consider for example the significant investment made
has been working closely with government to develop a
and tourism another spill over effect of the high-end
careers for their long-term employment. Many of the
by Grosvenor Estates in areas such as Mount Street to
number of recommendations to improve the visa application
creative and cultural industries is to the enhancement
high-end businesses will have skilled craftsman in their
enhance the whole area with a combination of attractive
process and a recent visa facility sharing pilot with
of knowledge and skills and employment opportunities.
70s who are training the next generation and passing on
luxury brands and restaurants as well as investment in
Belgium was announced in early July 2015. Further policy
urban design with water features, road improvements
recommendations are outlined in section 8 of this report.
providing employment opportunities for young people in
the area. Last year Mulberry, with the help of government
traditional skills and knowledge.
The high-end creative and cultural industries, as noted
and planting. These investments have improved the whole
above, are a major contributor to employment in the UK,
As already observed in previous sections the high-end
area for visitors, residents and workers.
employing over 113,000 people directly and indirectly. The
cultural and creative industries have an extensive network
high-end industries provide both employment opportunities,
of contractual relationships with upstream suppliers, often
as well as training and sustainable careers for people
SMEs, particularly in industries such as textiles, fabric and
across the UK and importantly in areas outside of London.
leather. The intrinsic commercial importance of product
From medium and large scale manufacturing to individual
quality places a heavy premium on ensuring that the
artisans and makers working in regional clusters, the luxury
upstream suppliers have sufficient skills and are able to
supply chain has a significant footprint across the country,
adapt to changing requirements. In such circumstances,
providing jobs and training opportunities particularly in the
upstream suppliers have incentives for developing a
north of England, the midlands and Northampton. High-end
reputation for reliability and skilled workmanship, and
brands including Church’s, Ettinger, Halcyon Days, Bentley,
downstream purchasers have an interest in securing
Burberry and Savoir Beds, all have regional centres for
long-term supply relationships to ensure continuity of
manufacturing and production.
supply and to reduce transaction costs.
This observation is further supported by the prominence
attached to fashionable districts in promotional material
developed by tourism authorities. This enhancing effect
stems from the investments that luxury cultural and
creative industries make to facilities to improve their
attractiveness, and the effects on urban geographies of
these investments are further reinforced by the clustering
effects. A recent study by TNS Sofres established that
74% of citizens in the UK see the high-end creative and
cultural industries as a contributor to the UK’s economic
18
74% of citizens in the UK see
the high-end creative and cultural
industries as a contributor to the
UK’s economic development by
increasing the attractiveness of
the UK for tourists
19
85% of citizens in the UK see the highend creative and cultural industries
as a playing an important role for
employment and economic growth
relationships developed by the high-end cultural and
Knowledge-based activities are typically capital and skills
The clustering of upstream supply activities, driven by
creative industries, these spill over effects would have
intensive, and generate a high degree of local value added
knowledge spill overs, also have an important role in
been unlikely. Given the close relationship between skills
through proprietary knowledge. High-end cultural and
stimulating regional development. This is partly because
and productivity, and between productivity and economic
creative industries themselves are part of the knowledge-
of labour market “matching” effects outlined above and
growth, these knowledge spill over effects associated
based economy and as a result their tendency to cluster
also due to the fact the region becomes more attractive
with high-end industries constitute a genuine multiplier
in specific cities will stimulate the knowledge-based
for investment (by nature of the stock of skills). A further
effect. Essentially the economy would have been smaller
economy in their host regions and countries. But they also
channel is the fact that the supply chains associated
in their absence. The spill over effects are particularly
contribute indirectly to the development of the knowledge-
with high-end activities connect these regions to the
important in the UK at a time of youth unemployment, as
based economy through labour-market effects. High-end
global economy. This is particularly important given
they increase the skill sets of younger workers, provide a
cultural and creative industries usually rely on a highly
the difficulties SMEs usually encounter in accessing
Such arrangements are conducive to a particular form of
choice of training and long-term careers and hence their
skilled and creative cohort of employees, who are attuned
global markets.
knowledge spill overs. In part these may be associated
competitiveness in the labour market.
to global markets and competing in demanding market
with training and other initiatives that high-end cultural
segments. These skills and know-how are portable across
The automotive sector is the largest by value of the high-
and creative industries may undertake to develop the skills
A recent study by TNS Sofres established that 85% of
industries that require similar managerial and sales skills
end cultural and creative sectors and is well known for its
of suppliers. These initiatives themselves are not spill
citizens in the UK see the high-end cultural and creative
sets. The fact that luxury cultural and creative industries
clustering effects. An example of a high-end cluster is in
over effects but they may generate spill over effects. As
industries as playing an important role for employment
cluster in specific locations increases the stock of these
Oxfordshire where we see a cluster of businesses involved
suppliers improve their skills, some of their knowledge and
and economic growth and 79% believe that they have
skills in those areas, which can make it attractive for other
in Motor Sport - which includes luxury and specialist
expertise is likely to spread to other supplying firms, either
an important role in the preservation of craftsmanship,
knowledge-based activities to locate to the same area.
manufacturers, including four firms currently involved in
through observation, through employment or through
know-how and creative professions.
This is because in doing so, they are able to reduce their
formula 1 racing. More broadly, “Motor Sport Valley”, which
search costs by better matching available skills with the
extends from Buckinghamshire to Northamptonshire,
requirements of these activities.
features a network of around 3,500 businesses employing
informal networks.
6.4 CLUSTERING EFFECTS
Suppliers are also likely to benefit from learning-by-
A further benefit conferred by the high-end cultural and
doing and the tacit transfer of knowledge and skills, quite
creative industries is the clustering of high-end cultural
These agglomeration effects via labour markets provide
80% of the world’s high performance engineers. The
independently of any formal efforts undertaken by the high-
and creative activities. This is most obviously visible
one explanation why cities that feature a high concentration
industry is a key component of the region’s knowledge-
end cultural and creative industries. These tacit effects are
in luxury design, services and retail activities in cities
of high-end cultural and creative industries also tend to
based growth strategy.
generally observed where there is repeated and frequent
(downstream agglomeration effects); and the clustering
feature a high concentration of other high value-added
interaction, as is the case with luxury cultural and creative
of supply chain activities related to luxury, cultural and
activities, such as retail services, professional services,
6.5 PUBLIC GOODS RELATED
industries who work closely with suppliers to develop
creative industries, reflecting knowledge-related spill
telecommunication, and financial services.
TO THE VALUE OF PLACE
products. Such learning-by-doing effects are generally
overs (upstream agglomeration effects).
considered to be one of the main channels through which
around 40,000 people, and which accounts for an estimated
The importance of these public goods was already
A secondary channel through which luxury cultural and
discussed in relation to tourism activities, agglomeration
the stock of skills and knowledge increases within an
Clustering of high-end activities that interact directly
creative industries generate agglomeration effects in
effects and is also valued by residents. Evidence of this can
economy as a consequence of trade and investment.
with customers create important agglomeration effects
relation to knowledge-based activities is through their
be found in data from surveys of public opinion in Europe
Furthermore these effects tend to diffuse across supply
in relation to tourism and travel, as documented above,
contribution to the quality of place (see following section
regarding the impact of high-end cultural and creative
firms in any given area due to employment mobility.
either through spill overs of the Shopping Tourism channel
relating to Public Goods). Improvements to the quality
industries. Data from 2013 suggest that 74% of surveyed
or through the Public Goods channel. Other sources of
of place enhance the quality of urban settings. This is
respondents in the UK thought that luxury cultural and
These types of knowledge spill overs are important since
agglomeration or clustering effects are related to the
important as the labour force associated with knowledge-
creative industries made an important contribution to
they increase the stock of skills in the UK economy.
contribution high-end cultural and creative industries play
based activities is typically more mobile than the average.
the prestige and appeal of city centres. This figure does
Some of these skills may be generic while others will be
in developing the knowledge-base of the UK economy (as
Enhancements to the quality of place can thus increase
not vary materially from that reported in 2009, pointing
specific but without the dense network of subcontracting
referenced above), which is central to competitiveness.
the attractiveness of particular locations.
to the stability of this perception.
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7.
Forecast trends
It is difficult to establish a precise forecast for the high-
• Real GDP growth in the advanced economies for the
On this basis, a conservative forecast would be to assume
Key performance indicators for the sectors under both
end cultural and creative industries as a whole, given
period 2014-2019 is forecast to be around 2.3% per
that the sectors will grow over the period 2014-2019 at
scenarios are presented in Table 4 below.
the range of factors that may influence performance.
year, compared to around 1.3% in the period 2012-13.
the same rate as they did in the period 2010-2013. This is
The Frontier Economics report for the ECCIA highlighted
However, there may be significant downside risks given
conservative since the forecasts presented above suggest
The projections point to significant growth in the high-end
how policy variables – such as Intellectual Property
persistent fragilities in the Eurozone, notably.
that: (i) key economies would grow faster in 2014-2019 than
creative and cultural sectors over the medium term. Further
protection and anti-counterfeiting measures, market
• Growth in Brazil is forecast to be broadly similar in
they did in 2010-2013; and (ii) key emerging markets are
growth could be generated by favourable changes in the
access, ability to attract tourists, selective distribution and
2014-2019 as was the case in 2012-2013. Growth in China
wealthier than they were in the period 2010-2013. A high
policy environment notably, more stringent enforcement
digital governance – could each have significant effects
is expected to be around 6-7% per year, i.e. still robust
growth scenario would be to assume that the sectors will
of Intellectual Property and Anti-counterfeiting measures.
on the performance of the sectors and their economic
though dropping off slightly compared to 2012-2013.
grow in 2014-2019 at the same rate as they did in 2012-
contribution to society. In addition to these variables,
Growth in India is expected to increase to an average
2013 (i.e. at around 10.8%).
other factors, such as trends in international competition
of around 6.4% over the period 2014-2019, compared
(including from other firms within the EU) and economic
to around 4.5% in the period 2012-2013. Growth in
growth in key markets will all have a significant impact
Russia is forecast to be lower in the period 2014-2019
on sector performance.
compared to 2012-2013.
• The outlook for Middle Eastern countries is uncertain
PROJECTED VALUE
2019 (BILLIONS)
PROJECTED
EMPLOYMENT 2019
Assuming that the policy environment remains broadly
because of the fall in oil prices and regional instability.
Scenario 1
£51.1
158, 775 employees
constant, and that patterns of competition remain broadly
Assuming oil prices do not revert to their levels of
as they are at present, the main determinant of performance
2012-2013, growth is expected to be correspondingly
Scenario 2
£57
177,254 employees
for the UK high-end cultural and creative industries will
slower in the period 2014-2019.
TABLE 4: PROJECTED PERFORMANCE TO 2019
be growth in key markets. These markets are:
Overall, though the general forecast is for the world
• Advanced economies, notably USA, Canada, Japan and
the Eurozone countries
economy as a whole to grow faster in the period 20142019 than in 2012-2013, there are significant uncertainties
• Key emerging markets: Brazil, China, India, Russia
given the weaknesses identified in certain regions and
• Oil exporting countries of the Middle East
strengths in others. This mixed picture is also true of key
emerging markets – China, India, Russia and Brazil – that
We rely on growth forecasts for these regions prepared
have been significant sources of growth for the high-end
by the IMF and reported in its World Economic Outlook
cultural and creative sectors.
database. The key trends reported are:
22
*
Source: Frontier Economics calculations, based on industry reports, and IMF data
23
8.
Policy implications
The key messages of the previous sections are that high-
would enable the high-end cultural and creative industries’
8.3 SELECTIVE DISTRIBUTION
8.5 VISA FACILITATION AND AIRPORT CAPACITY
end creative and cultural industries make a substantial
business model to flourish. The key elements of such a
As highlighted earlier in this report, the high-end industries’
As highlighted earlier, the high-end industries are
and distinctive economic contribution to the UK. This
policy framework are detailed below:
distribution strategy is geared towards maintaining the
responsible for a considerable economic contribution
aura of the product, to ensure that the goods and services
to the tourism industry in the UK by being a determining
contribution is both direct – in the form of value added
and jobs created and indirect. Indirect effects include
8.1 INTELLECTUAL PROPERTY
are distributed in an appropriate way, that maintains
factor in choice of destination, through tourist spend on
significant linkages with the tourism sector, and in labour
The protection of Intellectual Property continues to
and enhances the experience, enables levels of service
shopping and luxury experiences and also due to wider
market linkages, which reflect the significant networks and
represent a critical issue for the luxury cultural and
and confidence expected by the customers as well as
spill over effects of enhancing the appeal of locations.
clusters of suppliers that are associated with these sectors.
creative industries. A strong framework for Intellectual
supporting commercial considerations.
Property protection is key for the high-end industries to be
However, the UK continues to be at a significant
In keeping with trends identified for Europe as a whole, the
able to differentiate their products, to secure investment
The ability for the luxury cultural and creative industries
disadvantage by comparison to European countries,
high-end creative and cultural industries appear poised
in innovation and development, as well as their brands
to closely manage and invest in their distribution models,
continuing to miss out on the important economic benefits
to continue their strong economic contribution in future
and businesses, with the legal certainty that IP rights
through the principles of selective distribution (which are
of attracting tourists. In the case of visitors from China, by
years. The core source of growth in these sectors are
will be upheld in both the physical and digital economies.
currently enshrined in EU legislation) is critical to future
comparison to countries such as France the UK is losing
the distinctive business principles that underpin these
Furthermore to tackle the specific issue of counterfeiting
growth and success and needs to be protected for this
£1.2bn annually to the economy as s a direct result of the
industries, namely:
and to enhance IP protection there is a requirement for
unique industry.
current visa system.
• The aura of the products in these sectors, which reflect
tougher sanctions to deter counterfeiters, to improve the
the cultural heritage on which they draw, and the rich
damages and compensation for rights holders as well as
8.4 MARKET ACCESS
Policy and visa facilitation that enables the high-end
tradition of skilled craftsmanship they embody. The
a need for further clarification of the safe harbour status.
As discussed in this report, the luxury creative and cultural
industries to attract high-spending visitors to the UK from
industries are export orientated, harnessing the unique
key markets including China and the Middle-East is critical
8.2 DIGITAL GOVERNANCE
characteristics and appeal to expand internationally.
to the success of the industries and further economic
• The importance of long-term relationships with a
The increased digitisation of our economy brings with it
However, trading internationally is not without challenges,
benefits to the UK economy. In particular, supporting the
network of skilled suppliers, with an emphasis on
a wealth of opportunities and with it a responsibility to
in particular, high ad-valorem tariffs and domestic taxes
recommendations of the UKCVA and the further roll-out
product quality that allows the brands in these sectors
ensure consumer trust and safety online. In particular
in markets such as China are barriers to entry for a
of the pilot scheme of visa sharing facility with Schengen
to position themselves competitively.
policy relating to responsible online marketing practises, a
number of SMEs. Policy, trade agreements and diplomatic
country, Belgium, to other countries such as France as
general duty of care on online service providers, recognition
relationships with key markets and other activities that
well as reducing the pricing of the 10 year visa to make it
of selective distribution, IP protection as well as policy
enhance their ability to access international markets is
more attractive and encourage multiple visits.
and sanctions relating to counterfeiting and the alignment
critical to future success.
concept of aura also extends to the way these sectors
market and distribute their product
• The role of Intellectual Property in securing the value
added of the final product.
The research commissioned by Walpole highlights the
of criminal sanctions for on and offline IP infringements
value that the UK as a whole would derive from continuing
are all key to providing a secure digital environment for
to ensure that a suitable policy framework is in place that
customers and businesses to operate.
24
25
The high-end creative and cultural industries are forecast
to continue their rapid growth in the medium term.
Forecast value of sales for 2019 is between £51.1bn
and £57bn, while forecast employment is between
around 158,000 and 177,00
Charles Russell Speechlys is one of a small number of law firms which provides
personalised, considered advice to dynamic and entrepreneurial organisations, as well
as astutely commercial advice to individuals and their families. The firm is uniquely
positioned to provide comprehensive advice where these two sets of needs overlap
and as a result we work with some of the world’s most successful entrepreneurs,
The London airports issue is well documented with
8.6 SKILLS AND VOCATIONAL TRAINING
research from Let Britain Fly showing that the already
The report has shown that the UK as a whole benefits
busy airports will be over capacity by mid 2020, with
from the employment opportunities and wider spill overs
Our approach is to take both a long-term and broad view, helping our clients to make
demand set to double by 2050 and business demand
to manufacturing, knowledge and skills from the high-
the right decisions now and for the future. We adapt to the needs of each of our clients
alone forecast to grow by 80% by 2030. Furthermore the
end cultural and creative industries which employ nearly
and work with them in a highly responsive and personal way, sensitively guiding
UK has no direct daily flights to 10 emerging markets –
113,000 people directly and indirectly. However, the luxury
but 26 cities in those economies are served by European
industries rely on highly-skilled craftsmen, a creative
competitors and this is significant as 20% more trade is
workforce and numerous SME upstream suppliers to
done with countries where the UK has a direct air link.
support the business model and there is a requirement
the luxury sector, where we work closely with Walpole as a corporate partner. We
Research from Let Britain Fly shows that an increase
to address the gap between the industry needs and the
advise clients in the UK and across the world.
of 1,000 passengers a year between two countries sees
availability of a highly-skilled workforce.
wealthy families and growth businesses.
them to the right outcome. Many much larger commercial clients find our approach
a refreshing alternative to that of larger, but less personal law firms. We are based
in London with a network of international offices and other associations. Our focus is
based around a number of key industry sectors and practice area specialisms including
HOW WE CAN HELP
trade increase by as much as £920,000. Extrapolating
Managing your brand, protecting your designs, establishing secure commercial
these figures shows that £128m additional annual trade
As such policy and activities that recognise the value of
could result from one new daily route, or £1bn from a
these types of unique skills and knowledge is important
new daily route to all eight high-growth economies (these
- as is the promotion of vocational training, raising
high-growth economies are China, India, Brazil, Russia,
awareness of career opportunities in manufacturing jobs
your field is essential. Our specialist team can provide bespoke advice to high profile
Indonesia, Mexico, Turkey and South Korea).
and policies that promote the transfer of knowledge and
businesses and entrepreneurs in a wide variety of matters relevant to luxury brands.
arrangements and dealing with disputes, along with day-to-day employment, financing
and property matters, are riddled with legal and regulatory complexities. That is why
working with an enthusiastic team of lawyers who understand and have experience in
further support for apprenticeship schemes.
The cost to the UK economy is significant and is further
exacerbated by reducing the UK’s long-term ability to
It is important to underscore that all these aspects are
compete internationally as competitors continue to reap
sound policy in their own right, and have wider payoffs. For
benefits and build important trade links. Following the
example, there are clear links between counterfeiting and
final recommendations from the Davies’s Report for the
criminality, and therefore the benefits of anti-counterfeiting
additional runway at Heathrow, commitment is now needed
activities will have wider social payoffs.
to implement the recommendations and avoid further
Frontier Economics is Europe’s largest independent economics consulting group.
costly delays to the UK economy.
It specialises in the application of advanced economics to help governments make
better policies and businesses to add value.
26
27
WALPOLE
2nd Floor Riverside, Building County Hall, Westminster Bridge, London SE1 7JA
T +44(0)20 7873 3802
www.thewalpole.co.uk
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