Luxury goods sector beginning to feel pinch - “Absolute” luxury goods fare much better. - The worldwide luxury goods market, which is usually relatively immune to crises, is beginning to feel the effects of the recession, according to a sectoral study by Bain & Company published on 29 October. For the first time in six years, the luxury goods industry is likely to go into recession in 2009, with a -2% fall in sales when using current exchange rates, or a -7% decline when using constant exchange rates, Bain & Company says, after analysing the financial performances and forecasts of 220 of the leading luxury goods companies. The study finds that the luxury goods market will slow sharply to +3% in 2008, compared with 6.5% in 2007 and 9% in 206. “The impact of the financial crisis will bring some sectors into a recession. How much and how long depends in part on how companies react. The most resilient will be those with strong international and diversified brands,” said Claudia D'Arpizio, the lead author of the study. In the longer term, the study forecasts that spending by the rich will increase in emerging markets, such as Brazil, Russia, China and India, by between 20% and 35% over the next five years. Region by region. The study says that 1) Europe, which represents 38% of the world luxury goods market, can expect its growth to slow by half to 5% in 2008, compared with 10% in 2007. Much of the continent's growth will be propped up by Eastern Europe. 2) The luxury goods market in Japan, which represents 12% of the world market, has been in recession since 2007 (-2%), and this situation is forecast to worsen in 2008 (-7%). The weakness of the yen against the euro in 2007 pushed Japanese consumers towards smaller ticket items, such as fragrances and shoes, thus driving down average ticket prices. 3) Following 4% growth in 2007, the United States market is likely to stagnate in 2008. This will be the first year of stagnation after the economic slowdown which followed the 11 September 2001 terrorist attacks. The impact of a strong euro combined with the sub-prime crisis has taken consumers out of the more accessible segments of the market, which includes brands such as Tiffany and Coach. By segment, the study reveals that 1) “accessible” brands, characterised by affordability, status and membership (brands such as Coach and Ralph Lauren) will be the first to be affected by the downturn. This segment recorded significantly lower performances in 2007 (+4%) than in 2006 and 0% growth is forecast for 2008; 2) Growth in “aspirational” brands, such as Gucci and Louis Vuiton, remained steady in 2007 (+9%) and is likely to be aligned with market growth in 2008 (+3%). 3) Brands such as Hermes, and Loro Piana, “absolute” brands, remain resilient, as their elitism and brand heritage appeal to the wealthiest global customers: +10% in 2007 and +8% in 2008. By product, the study forecasts 1) stagnation in the clothing (both ladies and gents) sector, in particular in the “accessible” segment, the other two performing slightly better); 2) a fall in jewellery sales, from +9% in 2007 to +2.5% in 2008, as a result of the cooling of sales in Europe and the United States - watches seem to be the exception, since these tend to be the first “luxury item” purchased by emerging market consumers; 3) accessories are still the kings and queens of the luxury market, with strong growth in 2008 in shoes (+8%) and leather goods (+4%): the ongoing “accessorisation” process is helping sales in this sector.; 4) fragrance growth will be cut by half, to +2.6%, in 2008, while cosmetics are not expected to be as badly affected. (I.L./transl.rt)