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Luxury firms to sail through global slowdown

Luxury firms to sail through global slowdown
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First Published: Fri, May 30 2008. 04 08 PM IST
Updated: Fri, May 30 2008. 04 08 PM IST
Reuters
Tokyo: Luxury goods makers are hoping to weather a consumption slowdown in the U.S and Japan, their two biggest markets, with the help of shoppers in emerging economies and super-rich clients who do not feel the economic pinch.
Industry experts have questioned how long fashion companies, yacht and sports car makers and other luxury goods makers can resist the wider consumption slump. The very wealthy, after all, comprise a small group of people, and China, India and Russia are not yet spending enough to replace U.S. shoppers.
But chief executives at a luxury goods conference in Tokyo showed optimism, saying that sales were holding up. “The luxury business has grown faster than the general economy and I think that trend is here to stay,” said Toni Belloni, managing director at LVMH, the world’s largest luxury group.
Despite crisis but optimism prevails
So far, the evidence has been mixed. LVMH reported solid Q1 revenues, but others have seen slower sales. Bulgari, the jeweller, saw sales rise 3% in Q3, while net profit was down.
Ermenegildo Zegna, chief executive of the eponymous Italian suit maker, said his company was expanding into sportswear and accessories but also made-to-measure services for wealthy clients to woo new customers.
“Despite the crisis, we’ve been able to sustain single-digit sales growth. We can still grow despite the slowdown of two of the most important luxury goods markets,” he told reporters at the conference.
“The business model has to be changed. We are adding leather accessories, glasses, perfumes.” Zegna is also the latest European fashion group to invest in a huge new flagship store in Tokyo. Armani, Bulgari and Gucci have already built glitzy retail towers in Ginza and Omotesando, Tokyo’s main luxury playgrounds. With sparkling facades, designer restaurants and spas, the shops attract luxury fans from all over Asia -- most crucially, rich Chinese tourists who would rather shop in trendy Tokyo than in Beijing or Shanghai.
Luxury customers in Japan on the wane
While Tokyo is turning into Asia’s most popular shopping centre, Japanese consumers themselves have become less enthusiastic.A tepid economy and an ageing population have led to the demise of the classic luxury goods consumer here: the “office lady” in her 20’s who lives with her parents and spends a large portion of her income on luxury goods.
Economic data points to persistent weakness in Japanese consumption. Overall household spending in April fell 2.7% from a year earlier, a much bigger decline than expected. Rising grocery prices, stagnant wages and a stalling job market are hitting consumer sentiment.
Consumer spending in U.S dips to 28-year low
In the United States, consumer sentiment was likely stuck at a 28-year low in late May due to record gasoline prices and a deteriorating job market, according to a Reuters/University of Michigan poll.
“You have to explain the story behind the product,” di Marco said. “The customer is hungry for information.”
Other executives have also noticed stronger demand for their high-end, hand-crafted shoes and clothes and personalised products.
Vincenzo Cannatelli, CEO of Italian yacht maker Ferretti, said the company expects double-digit growth in revenues this year, with sales of their biggest and most expensive yachts outperforming the middle section.
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First Published: Fri, May 30 2008. 04 08 PM IST