Luxury sales to fall 8%

21 October 2009

MILAN: The global luxury goods market will post an 8% decline in revenues, to $153 billion (€102bn; £93bn), this year, before returning to modest growth of 1% in 2010, according to the latest forecast from Bain & Co, the consultancy.

Earlier this year, the company predicted that sales of high-end goods would contract by 10% in 2009, but while it has now slightly revised this estimate, it also warned that the category would take a considerable amount of time to fully recover.

Claudia D'Arpizio, a partner at the US-based firm, said "2010 will be a year of consolidation. We can start talking about recovery the following year, but you need to wait until 2012 to go back to pre-crisis levels."

"We are seeing less discounting and markdowns and more signs of increasing consumer confidence. Growth will be timid in 2010, but it is a movement in the right direction."

By region, the Americas are expected to post a decrease in sales of 16% this year, with Europe, which contributes 38% of all sector spending, also down by some 8% in all.

Japan, which has a market share of 12%, will record a drop of 10% in 2009, a trend partly resulting from a tendency among younger shoppers to combine these brands with an increasingly diverse range of other products.

China will register an improvement of 12% year-on-year, but this total constitutes less than half of the uptick of 30% enjoyed in the world's most populous nation in 2008, with Asia as a whole up by 10%.

"Aspirational luxury shoppers in Asia and other emerging markets are fuelling sales in 2009. They remain bullish on brands," D'Arpizio said.

Despite this, overall revenue levels in China will still only reach €6.6 billion ($9.9bn; £6.0bn) during 2009 as a whole, compared with €19bn in Japan, €44bn in the US and €59bn in Europe, Bain predicts.

D'Arpizio also suggested that the biggest companies in the sector, such as LVMH, Compagnie Financiere Richemont and Gucci Group, are likely to prove the most resilient.

"There are many, many small and medium companies that don't have the financial and managerial muscle to react to the more competitive and more difficult market, like this one is becoming," she argued.

In demonstration of this, several luxury specialists, such as Christian Lacroix, the French firm, Escada, the German premium goods manufacturer, and Yohji Yamamoto, a Japanese company, have all filed for bankruptcy protection in 2009.

Bain also predicted that online sales would increase by 20% this year on an annual basis, but added that the web would still only contribute 3% of total category revenues overall.

Data sourced from Wall Street Journal, Reuters, Financial Times; additional content by Warc staff