If various global wealth reports are to be believed, the world’s ultra-wealthy are progressively moving away from traditional luxury consumption models based on the ownership of products and assets and towards those that allow them to experience luxury without the headache of ownership.
‘Rarity that drives exclusivity is the ultimate luxury principle. Historically, in terms of ownership, people always wanted to show off products that were rare and exclusive because only the richest could afford it,’ says Winston Chesterfield, director of custom research at Wealth-X, the global wealth information business. ‘Next came an era of demand for brand names. More people were able to buy into luxury, luxury became more commonplace globally and brands became focal points for the visual representation of wealth. However, driven by globalisation, cultural homogenisation and social media, experience has become a product in itself because people don’t feel the need to own items provided they are able to showcase that they enjoyed them.’
To claim that attitudes towards owning a superyacht have run exactly in parallel with general attitudes towards luxury consumption would be wrong given the extreme cost of purchasing a superyacht. However, it is important to understand how global attitudes towards consumption may reflect on to the industry.
‘When the global network of people exploded to the size it is now, growing from small social circles, in which perhaps one other person owned the same product into huge social chains where thousands of people use the same products, elements of luxury became less enticing because the rarity was diminished,’ continues Chesterfield. In a yachting context, one might consider the floods of images across all manner of social-media platforms that show models and celebrities making use of superyachts all over the world. Now, while images of models on board yachts may seem glamorous and aspirational to those who are not wealthy, it all contributes to a diminishing rarity for the world’s wealthiest individuals.
However, to consider a movement away from ownership models as a fall in demand would be to wholly misunderstand the phenomenon. Given that much of the superyacht new-build market is already bolstered by repeat business – owners buying their second, third, fourth or even fifth yachts – it is likely that much of that custom will remain, at least for the time being, provided the market works to reduce the complexities of owning such vessels. The movement towards experience-based consumption (charter) is far more likely to have an impact on the younger, more technologically influenced generations. Furthermore, the ability to experience something is not limited to those individuals who are yet to buy.
‘We see that the chartering of superyachts as a whole is on the rise globally – this information is available in the documentation provided by the top brokerage houses,’ explains Erwin Bamps, CEO of Gulf Craft, the prolific UAE-based new-build shipyard. ‘You will see that charter growth over the last eight years has been phenomenal compared to the growth of yacht sales. This is a fact.
‘This is great news for the yachting community because it means that for builders and service providers and anybody else related to the yachting industry there is an engaged group of people with an affinity to the water and a willingness to engage in yachting. What we are seeing increasingly is that a number of yacht owners [who] already have yachts in one part of the world are looking for something that is complementary to owning one.’
By way of an analogy, Bamps highlights how the superyacht market to date has been too narrow in the way it has been considering the experiential/rental shift. For those of you lucky enough to own a holiday home, consider this. Just because you own a holiday home, does that mean you only holiday in the same place every year? If the answer is yes, that is very much your prerogative, but some people may rent out their villa and try somewhere new every other year. Equally, if you own a house, does that mean that you must own other houses to visit them? The issue many may have with this analogy is that holiday properties aren’t yachts and therefore they can’t move. If you have gone through the process of selecting and purchasing a car, why do you rent a car when you are holidaying on the other side of the world?
‘I own a house and yet I don’t choose to buy a new house in every single place I visit. I may rent a hotel room, use Airbnb or another service,’ continues Bamps. ‘Why do the models of renting and owning something have to be contradictory? It is not always the case that one leads to another’ – although charter is still heralded as the most effective route to ownership. ‘You don’t sell your car each time you go on a business trip. What we see in yachting is increasingly this. We see people owning yachts, possibly in the Mediterranean, and then using charter to travel the world.’
There is, however, foreseeably an issue related to an increasing demand for chartering superyachts. While no one would argue that such a demand is a bad thing, it may be that the charter market will be insufficiently stocked with top-quality, recently delivered (within five years) superyachts that fall within the most popular size range (35-55m) if the market’s new-build performance fails to keep pace or the market fails to make commercial superyachts an appealing proposition to prospective and current owners. For many, the headache of owning a commercial vessel is simply too big and, as a result, the market is failing to capitalise on its potential to encourage charterers and turn them into future owners.
‘We are already starting to see that there is a limitation on the availability of products,’ says Toby Maclaurin, sales and marketing director at Ocean Independence, the global brokerage, charter and management company. ‘In high season, there is certainly a dearth in the supply of quality, midsized superyachts capable of taking 12 guests. Personally, if there were to be a huge increase in demand, I would be very concerned about the market’s ability to service this demand given its current trajectory. What we have begun to see is that the incredibly steady repeat business that charter was almost famed for is no longer so predictable.’
A decrease in stable repeat business is not necessarily a bad omen. Given that charter figures are continuing to steadily increase, regardless of year-on-year business from the same clients, it suggests there are more consumers actively engaged in the charter market. A decrease in repeat business merely implies that the same consumers are also engaged in other luxury tourism pursuits, whether that be ordinary land-based tourism such as hotels, villas and chalets or more extreme and adventurous activities. However, Maclaurin believes the superyacht market is at risk of falling behind in terms of the levels of professionalism and service provided by these alternative pursuits.
‘Probably the most irritating element of yachting for many customers is the lack of a transparent and simple taxation structure for chartering,’ says Maclaurin. ‘To put it bluntly, our customers couldn’t care less about cabotage. If I was told that I would pay the full rate of VAT if I stayed in French waters but that I would pay a significantly reduced rate by intermittently leaving and then re-entering France at my own inconvenience, I would find it very annoying.’
Maclaurin highlights that these types of examples are numerous and vary from country to country, each as irritating as the other. He also points out that this annoyance is equally as heartfelt from the perspective of the owners who choose to commercially certify their vessels and make them available to the charter market, outlining the complexities that in many cases lead owners to go private rather than charter. This further adds to the supply-and-demand issue.
‘A lack of industry lobbying to fiscal authorities and flag states, even when chartering out smaller vessels, has meant that the system has become quite a headache,’ says Maclaurin. ‘Additionally, when you want to use your own yacht, you have to charter it! In my opinion, the industry made a massive mistake with the French Commercial Exemption. We should never have tried to claim that chartered vessels are commercial in order to find a temporary VAT solution. Had the industry had greater understanding or taken a more long-term view, I doubt that it is a solution we would have adopted.’
Much discussion over the past year has focused on issues relating to the perception of yachting, issues with superyacht marketing, the sharing economy and the changing consumption patterns and principles of ultra-wealthy individuals. But have these discussions failed to appreciate the issues that are genuinely at the heart of the super-yacht market? Could it be that there are already wealthy individuals who may have been willing to engage with yachting and part with significant amounts of money, but who are simply put off by inflated expectations and unnecessary complexity?
‘There is an endemic misinterpretation of ultra-high-net-worth individuals’ values at present,’ says Chesterfield. ‘The consensus seems to be that wealthy people are no longer interested in showing off and that they have, almost overnight, become great people [who] care more about the goodness of a brand, sustainability and global impact. Superficially this may be true, but it is more related to how those outward values improve their social status. If wealthy individuals truly wish to purchase or experience something, they will continue to do so.’ Is it any wonder then that the identities of superyacht owners remain such a guarded secret?
Bamps explains that owners and potential owners are increasingly seeing space as a big element of the luxury experience they want to have in yachting. However, their demands are not in line with what they are prepared to spend. The on-board desires now expressed by owners, in terms of tenders, toys and amenities, are befitting of a 60m-plus superyacht but their price point has remained more in line with 30-40m projects. There is a discrepancy between demand and price point that is having a profoundly negative effect on generating new custom as well as having a pressurising effect on the profits yards are able to make.
‘We have never experienced this phenomenon to be as polarised as it is today,’ continues Bamps. ‘If you want a cinema room, two jet skis, two tenders, a slide, a beach club, a swimming pool and more, you are going to need to shell out for it. Now, more than ever, it is important to deal with feature lists and budgets realistically. The issue we are dealing with is not, in all cases, to do with genuine return on investment. We are talking about the amount of value/ enjoyment owners are able to get per square metre or per million dollars. People are increasingly looking for larger yachts but then scratching their heads because the pricing curve is not linear. This is exacerbated by the impossibility of the well-documented issue [of] providing accurate figures relating to the long-term costs of running a vessel.’
Suggestions given for this disparity between expectation and cost of ownership have often drifted towards alternative consumption models for yachting. At various points, people have discussed fractional ownership (although the jury is still very much out on its potential), membership clubs, timeshare models and various others. What can be agreed is that there is definitely an opportunity for new businesses and fresh ideas to have a profoundly positive effect on yachting. Yet the market finds itself in a situation where such models remain a distant utopia, thanks in large part to the regulatory mire of maritime business.
‘The persisting problem is the common mindset that still puts super-yacht usage into two categories – you either own a yacht or you charter a yacht in the traditional sense,’ says John Leonida, partner at Clyde & Co. ‘What the market is yet to really get its head around are the various ways in which yachts can be used beyond these models. However, this is partly because the legal framework that we currently work under is not sufficiently developed to encourage genuine ingenuity or disruption. This is part and parcel of the reason [why] current attempts to shake up the traditional models and emulate the land-based sharing economy have failed.’
Leonida highlights enterprises such as Airbnb, Zipcar and various bicycle-sharing platforms as examples of disruptive enterprises. However, he points out that these businesses, which have successfully changed the ways consumers use these various products, fall within regulatory frameworks that are far easier to access for enterprising start-up businesses.
‘If yachting is to benefit, from the sharing economy or new ideas, it will require an appraisal of the current regulatory landscape,’ he continues. ‘The paradigms that have framed the use of ships for the last 2,000 years will have to be broken down. They haven’t broken down yet, but this will be a necessary step if the market is to progress.’
It may well be true that certain factions of the ultra-wealthy are moving away from traditional models of luxury-asset ownership, but this does not necessarily mean there will no longer be an appetite for ownership. What is clear, however, is that what people expect from their products and the ways they are choosing to engage in consumption are becoming increasingly varied.
The problem that the industry is faced with is not that people no longer want to engage with yachting, it is that the current structures in place are not suited to deal with today’s multifaceted approaches to luxury and this is unlikely to change unless some of the more fundamental issues within the market place are reconsidered. Simply hoping for disruption and options within a rigid regulatory system is not enough to encourage innovation and flexibility. The key is to provide simplistic and feasible touchpoints to the market and equally simplistic models for future ownership.
By Rory Jackson
This article was originally published by The Superyacht Report, March issue of 2018.