China's 'label lust' boosts luxury sector
• Designer goods sales set to hit record £150bn in 2011
• Study says Chinese market will grow 30% this year
The 'label lust' of newly wealthy Chinese consumers is expected to help spending on luxury goods return to pre-credit crunch levels next year.
After last year's "annus horribilis" for luxury retailers, a study from American consultancy Bain & Co today suggested the recovery was now in full swing with sales of high-end goods such as designer handbags, watches and champagne expected to surpass €170bn (£150bn) in 2011.
Leading figures in the luxury goods industry have been talking with increasing conviction of recovery and today Santo Versace, the chairman of Italian fashion house which bears his family name, said: 'In the first half of this year we talked about a light at the end of the tunnel. On the basis of the preliminary 2010 figures, we can confirm that positive trend.'
Versace also chairs influential Italian luxury goods association Altagamma, which contributed to the Bain report. It issued an official statement saying: 'Global consumption in 2011 should be significantly close to the record levels of 2007.' European brands account for some 75% of the global luxury goods market.
In 2009 the industry suffered its worst trading in 20 years, with sales plunging €14bn to €153bn, a decline of 8%, as even the super rich tightened their belts amid turbulent financial markets and rising unemployment.
But the recent round of company trading updates have indicated that the crisis has abated, with the major European luxury groups, including Louis Vuitton owner LVMH, PPR, the conglomerate behind Gucci and Yves Saint Laurent, and British trenchcoat maker Burberry, all making positive noises – particularly about China, which for many is taking over as the engine of growth.
Bain predicts luxury goods sales will jump 10% to €168bn this year and by another 3-5% in 2011. On that basis it estimates global luxury goods sales should surpass 2007's record to reach €173-176bn in 2011.
However Bain's prediction for growth in 2011 disappointed some investors, knocking the shares of LVMH, Hermes and PPR.
China remains the fastest-growing luxury market, with sales expected to surge 30% this year, while crisis-hit Japan will start to recover only next year, the study said. Sales in Europe are expected to rise 6% this year, although much of that will itself be down to high-spending tourists from emerging markets such as China.
Last week Burberry said underlying sales at its Chinese stores surged more than 25% in the first six months of the year while tourists from China were its biggest customers in many major tourist cities, such as Paris, New York and London – so much so it is hiring Mandarin-speaking shop assistants. The US registered the steepest decline of all the key luxury goods markets, with sales crashing 15% as desperate department stores slashed prices to win custom. Bain predicts the market will record growth of 12% this year.
LVMH exceeded analyst forecasts last week when it reported a 14% rise in third quarter sales thanks to demand for its Louis Vuitton clothes and bags as well as its high end Moet & Chandon and Krug champagnes. Its chairman and chief executive Bernard Arnault said trading in the first six months of the year "confirmed the rebound" seen in the closing stages of 2009. Louis Vuitton, with its distinctive LV monogram, is one on the most coveted brands in China and LVMH said its sales in the country were up 26-27% in local currency with the market accounting for 7% of group sales.
Within the sector leather bags, shoes, jewellery and watches are predicted to be the best performing categories, expected to jump 8% next year, trailed by clothing, perfumes, cosmetics and tablewear. The luxury yacht industry remains troubled- with Bain predicting 'double digit' sales declines this year, shrinking the market to €6.4bn with demand for smaller boats holding up better than for the super-yachts that were status symbols in the boom that lead up to the crisis.
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