Luxury Industry will not Recover Until 2011 – Maybe

Bain & Company's Luxury Market Update: 2012, authored by Claudia D'Arpizio has just been released. The study covers over 200 luxury goods brands, which includes leather goods, fashion, jewelry, alcohol and luxury real estate companies that serve high net worth customers, or those with assets of $1 million or above.

The global luxury industry contracted by 10% in the first two quarters of 2009 to 153 billion euros, compared with 170 billion euros in the first two quarters of 2008, following a disastrous 2008, where some markets collapsed completely by the end of 2008. Particularly hard hit was the Dubai luxury real estate market and Moscow.  However, D'Arpizio has faith that this decrease does not reflect a permanent change in the spending habits of the luxury consumer, and hopes that although, 2010 is set to be as bad as 2009, things might change by 2011. The study predicts  that sales of luxury goods will stabilize in 2010, they will increase by 4% in 2011 and by 7%-8% in 2012. Hard to guess where these figures come from, but I suspect a crystal ball and joss stocks were involved. Certainly, the amount of aharter boats sat idly in dock all along the Mediterenean coast does not bear out the prediction.

Luxury Goods Industry continues to suffer

"The downturn simply accelerated a trend that was already in place," says D'Arpizio of the less-is-more sentiment currently popular with consumers. The report concludes that consumers were tiring of the "bling" trend–such as showy jewelry and handbags–long before the recession took hold of the economy.  For an unspecified reason, the report suggest that this will change as soon as teh economy picks up again and consumers will immedieately start spending more freely again – within the next year and a half. Some highlights:

• Global sales of ready-to-wear fashion will decrease by 15%-20% during the second half of 2009.Global sales of jewelry and watches will decrease by 12% during the second half of 2009.
• Men's watch sales are more closely related to the gross domestic product of a country than any other luxury good category. When an economy is lagging, so are luxury watches.
• High-end shoes are still selling well because of their accessible price point ($400-$2,000) and perceived quality.-Luxury brands whose core business is leather goods–such as Louis Vuitton, Gucci and Hermes–will fare better over the next two years than those who focus on high fashion, such as Christian Lacroix.

While many luxury industry experts are hoping that the sector will rebound come 2011, others believe that this downturn is different from others, and that consumers will permanently cut back on spending, particularly in the U.S. "We've experienced the biggest trade down in the history of the [country]," says Howard Davidowitz, chairman of New York-headquartered Davidowitz & Associates, a retail consultancy and investment firm. "It's a change that will be here as far as the eye can see." I would have to agree with this, the global backlash against the bank bailouts and the ongoing need to bail out luxury developers around the world, will continue to put social pressure on the luxury goods markets.