Luxury sales unlikely to improve

11 September 2009

GENEVA: Richemont, the luxury goods group, has sounded a warning over the sector's prospects for the rest of this year, and is looking to emerging markets as a means of driving growth.

Bain & Co, the consultancy, has predicted that worldwide luxury sales will fall by 10% in 2009, having registered a decline of at least 15% during the period from January to June.

Recent research from JWT also found that "while the appetite for luxury goods is waning in the developed world … emerging markets are just getting started."

For the five months to August, Richemont's sales fell by 16% on an annual basis, including drops of 36% in the Americas and 22% in EMEA, despite an improvement in the Middle East.

By contrast, Asia Pacific, including China, registered an uptick of 5%, even though underlying sales decreased by 5% in Japan.

Sales through Richemont's own stores dipped by 7%, compared with a slide of 21% through wholesale, which was largely a consequence of de-stocking by retailers, particularly in the Americas.

Its jewellery and watch-making units were off by 14% and 18% respectively, with writing instruments down 17%, and leather goods by just 1%.

Johann Rupert, the company's executive chairman, said that "although the rate of decline in sales is slowing, we still urge caution."

However, he was also "confident in the power of the Maisons to innovate, improve customer service and grow their businesses. I am certain that Richemont will emerge from the current downturn very well placed to take advantage of the return of consumer confidence, whenever that may be."

Jon Cox, of Kepler Capital Markets, said Rupert was "being typically pessimistic, but even he admits the rate of sales decline is easing, which is a big positive. Asia stands out; thank goodness for China."

In line with this analysis, Bernard Fornas, president/ceo of Cartier, which is owned by Richemont, predicted the world's most populous nation will become the brand's biggest market in the next three years.

"There is a market in China for all these products because the market is diverse. You have very rich people to secretaries who buy our products," he said.

Japan is "more difficult today for all types of product categories," while India will "take off one day," although high taxes currently in the country are currently hampering that process, Fornas added.

Faberge has recently announced that it plans to sell its first collection since it recommenced trading – and which contains goods valued between $40,000 (€27,463; £24,000) and $7 million – almost solely on the web.

Mark Dunhill, the company's chief executive, said "you're taking a very big risk if you are building a network of stores ... we decided to be bold. We saw this as a massive opportunity."

As the "barriers to entry" have increased when it comes to developing a chain of shops, Dunhill said this "pioneering business model" would allow Faberge to make significant cost savings.

Data sourced from Richemont, Reuters, China Daily; additional content by WARC staff