Style / Fashion

Luxury market rebounding

The luxury goods market is rebounding from the slump caused by the global recession, but analysts say upscale sellers will be facing a hard slog due to changing demographics and lingering consumer caution. Global luxury goods industry sales are expected to grow four percent in 2010 to 158 billion euros (195 billion dollars) after a […]

May 31, 2010 | By Anakin

The luxury goods market is rebounding from the slump caused by the global recession, but analysts say upscale sellers will be facing a hard slog due to changing demographics and lingering consumer caution.

Global luxury goods industry sales are expected to grow four percent in 2010 to 158 billion euros (195 billion dollars) after a painful 8.0 percent decline in 2009, according to the consulting firm Bain & Company.

Much of that growth is expected in the first half of the year, with more sluggish trends returning in the second half, according to Bain’s Luxury Goods Worldwide Market Study.

In the United States, retail sales in the luxury segment in April jumped 15.5 percent year-over-year in April after a 22.7 percent surge in March, helped by comparison with weak sales a year earlier, according to MasterCard SpendingPulse.

Upscale retailer Saks swung to a record profit in the past quarter after a loss a year earlier, with sales up 6.1 percent. At rival Tiffany, it was a similar story with global sales up 17 percent in the most recent quarter and profit up nearly fourfold.

French luxury giants Hermes and LVMH also reported strong growth in sales in the first quarter boosted largely by rise in Asia excluding Japan as buyers snap up watches, jewelry and other upscale goods after months of economic gloom.

But it may be too early to break out the champagne for the luxury sector, analysts warn.

In the US market, consulting firm Unity Marketing reports that much of the growth is coming from super-rich households with incomes of 250,000 dollars a year — the top two percent of Americans. This group hiked spending by 22.6 percent in the past quarter.

The so-called “aspirational affluents” with incomes between 100,000 and 249,999 dollars increased their spending by only 1.9 percent from fourth quarter of 2009 to first quarter of 2010, the survey found.

“The ultra-affluents are returning to spending at pre-recession levels, while the aspirational consumers are holding back,” says Unity president Pam Danziger.

“But even with their exuberant amounts of spending, the ultra-affluents can’t sustain recovery in the luxury market.”

Danziger said the market for luxury cars, jewelry and other goods is now relying on a smaller slice of the ultra-rich population.

Prior to the recession that began in 2007, this market had been boosted by the so-called wealth effect with rising home prices and stock prices fueling spending by the “Henrys” (high earners, not yet rich).

This is a large group of nearly 23 million Americans with incomes between 100,000 and 250,000 dollars a year.

These households “were feeling they had resources back in 2006 and 2007 — their stock market portfolios were stable, their home values were going up,” said Danziger. “There was a wealth effect. Now all that wealth is gone.”

But Danziger says that even if the stock market rebounds and the economy steadies, the luxury market will be hurt by the aging of the US population: he baby-boom generation that fueled the big surge in spending is entering retirement and “Generation X” is not a big enough group to pick up the slack.

“The prime period for luxury goods is people who are 35 to 55 years old,” she noted. “As people get older, their priorities change.”

This suggests the luxury market is unlikely to regain its luster until around 2018 to 2020, when the Millennials born after 1997 start their spending sprees.

“So this means we have almost a decade that will be a luxury drought,” she said.

All this means a narrower market for luxury and some brands and stores expanding downmarket.
Some luxury retailers are expanding their outlet stores to be more accessible to upper middle-class shoppers.

Some of these store “are demanding that these (luxury) brands come in with more reasonable price points,” said Danziger.

Neiman Marcus, the upmarket department store, is testing a retail concept for shoppers who fled its stores during the recession.

“The aspirational customer really got hit hard, and we felt that they kind of vacated our stores last year,” said Neiman Marcus chief executive Burt Tansky in a March earnings conference call. “We’re making every effort to bring them back.”

Source: AFP


 
Back to top