Many studies conducted around the world last year confirmed that the luxury sector was the most resilient to economic shocks compared to other markets of consumer goods.
“By the end of 2015, emerging markets should account for more than 50 percent of luxury sales,” Antoine Colonna, luxury analyst at Carmignac Gestion, an asset managing company in Paris, told The Wall Street Journal. “This isn’t evolution. It’s revolution.”
Global giants like LVMH, Richemont and Burberry showed that the worst of times proved best for luxury brands. A weaker euro is helping boost European companies.
For every one percent decline in exchange rates, the industry’s average earnings before interest and taxes may rise 1.3 percent to 1.5 percent, according to Thomas Mesmin, a Paris-based analyst at brokerage CA Cheuvreux.
Plus, the weaker euro is bound to increase the purchasing power of tourists eager to make shopping inroads into Europe from countries with more stable currencies.
Consumer demand from emerging markets such as China and India turned to be the fundamental driver of growth in luxury sales in 2011.
Bain & Co forecasts that in the Year of the Dragon, China will overtake Japan on the global list of top consumers of luxury goods.
In turn, the World Luxury Association of China released the results for 2011 which say that China totaled $12.6 billion in sales on the luxury market, not including private jets, yachts and limousines.
Manufacturers, of course, understand the importance of the Chinese market for them and do everything they can to adapt to its environment and secure a firm beachhead there. In this light, luxury makers are reasonably wary of what would happen if suddenly all this would vanish and the Chinese economy bubble would burst.
Mr. Ariel Adams wrote in his blog, aBlogtoRead.com: “There is a realization that economic growth in China will slow and eventually level out. Under this option, the buying habits will tame, while their tastes will mature and become more sophisticated. Chinese consumer will quickly develop a taste for what people in the US and Europe want. And then the US and Europe cannot be ignored as essential markets.”
According to the forecast of the Organization for Economic Cooperation and Development (OECD), China's economy will grow at a pace of 8.5 percent this year compared to 9.2 percent in 2011. This is the lowest rate in 11 years. Bain & Co said in its December statement that the consumer ability of the Chinese luxury industry slowed down in the fourth quarter of 2011.
The World Tourism Organization estimated that Chinese tourists made over 30 million trips abroad in the first half of 2011, up 20% compared with 2010, and that by 2020 the total number of Chinese tourists traveling outside China would reach 100 million. Therefore, according to Goldman Sachs, inter-regional and international travel is the key to success of luxury brands.
Chinese consumers covered 25% of luxury sales in 2010 compared with 21% generated by European consumers, according to the corporation’s report. By 2025, China may account for 46% of global sales in the luxury sector.
On the occasion of the Chinese New Year analysts from the Hurun Report polled 503 Chinese millionaires with incomes of over $ 1.5 million and made a list of top gifts often preferred by these consumers of luxury. Louis Vuitton, Cartier, Hermes and Chanel were at the top of the list. Recognition, quality and origin are the main characteristics for the wealthy Chinese while choosing a brand. And last but not least, with a luxurious brand in possession the owner feels it easier to realize the gift’s value.
Luxury conglomerate number one, LVMH is making grand plans for the new year with regard to one of its most loyal and top customers in Europe - Italy. In January, LVMH launched their first fashion house in Rome. Another one is scheduled to appear in Venice. Given that there are only 14 Vuitton houses across the world, "this is an extra way to express our appreciation to the Italians," admits LVMH.
The company also intends to open its firstling stores in Jordan and Kazakhstan, and there is a long-awaited event involving the inauguration of the jewelry boutique in the Place Vendome in Paris.
"It’s no surprise that big luxury brands are moving into jewellery. This is one of the most potentially profitable sectors of luxury categories, where brands want to expand their influence in the long term. It is not excluded launches of high jewellery by luxury fashion brands may result in more seasonal products," believes Maria Doulton, founder of The Jewellery Editor.com, a luxury goods portal.
The new estimates confirm these new forecasts. Asian demand has become the main driver for the rapid growth of Richemont's revenues in the third quarter. About 40% of its proceeds the group received only from the sales in the Asia-Pacific region. Its total global sales for the period rose to €2.62 billion ($3.3 billion), up 24% over the same period in 2010. Revenue growth in Europe was $1.15 billion. All the results exceeded analysts' average estimates.
Sales of jewelry brands in the third quarter totaled €1.36 billion. In their turn, watch brands collected ?697 million. Vacheron Constantin watches and Cartier jewelry enjoyed great demand among buyers. The Group expressed confidence in the results of the current fiscal year through March.
Tiffany, the second largest seller in the world of jewelry, has lowered its annual margin forecast after weak holiday sales in all regions. The result is that Tiffany’s income fell to its lowest level for more than three years.
“Sales weakened markedly in the United States and Europe during the holiday season, reflecting restrained spending by consumers for fine jewelry,” Chief Executive Officer Michael Kowalski said in his statement. Only much more confident sales in Asian countries helped the company increase global sales by 7%, to $ 952 million in November and December.
In general, the company's revenue in Europe rose by only 1% compared with 13% a year earlier. Sales growth in the Asia-Pacific region decreased to 19% from 23% last year, Tiffany summed up.
2011 was outstanding for the Swiss watch industry, which set a new record for exports growth - 22%. Although in 2012 Swiss watchmakers expressed great concern about the slowdown in the euro area as a result of debt problems in the Eurozone and unemployment in America, feeling that even the high demand from Asia cannot compensate for the weakness of the markets in Europe and America.
"Brands are worried about Europe. If things are bad, people will stop buying watches," Jean-Daniel Pasche, the head of the Swiss Watch Federation, told Reuters.
All the exclusive products, which 18 well-known watch brands presented at the January watch fair in Geneva, were divided between the preferences of Asian and European consumers. Modest elegance with classic forms of a bygone era for Europe burdened with debt, and gaudy diamond gloss for prosperous Asia.
However, the lack of a sufficient number of new products and only small improvements of previous collections have proved that the watch industry is currently very wary and looks into the future with the same "cautious optimism."
Watch giant Swatch Group boosted its revenue to over 7 billion in December for the first time in its history. Its gross sales amounted to CHF 7.143 billion (€6.83 billion), an increase at constant exchange rates by 21.7% compared with 2010. The Group’s strong brands succeeded not only in Great China, but across all other regions and in all price segments. Sales in Europe increased by 16% in the period from April to December.
Seven key trends, 40 brands and 20 markets will determine the global position of high watch-making in 2012, according to the preliminarily published World Watch Report, issued by the major researcher of the digital market, Digital Luxury Group. The full version of the report will be available in March at BaselWorld.
The past year saw a gigantic expansion of retail brands, luxurysociety.com says. The Italian house of Prada was the most aggressive in terms of growth pace, having opened 51 stores during the first 9 months.
Fashion house Gucci opened its first flagship store in Lisbon, next to Prada and Louis Vuitton. The famous Italian jeweler Pomellato pleased its fans launching the largest boutique in the world's most prestigious street - Rodeo Drive in Beverly Hills – which attracts stars and fashionistas from all over the world coming there to buy. The official inauguration of the store is planned for the near future.
Swiss manufacturer of luxury watches, Hublot brought the total number of its stores to 42 having recently opened some of them in Courchevel and Gstaad, thus demonstrating very strong growth in just 4 years.
The oldest Swiss watchmaker Vacheron Constantin is planning to inaugurate seven or eight boutiques this year, adding to its existing network of 29 stores around the world. New stores will be located in several cities including Macau and Paris.
2,525 diamonds on one finger! This jewelry piece, unique in its beauty, which set a world record for the largest number of diamonds, is a ring graced with gems ranging from 0.001 to 0.05 carats and totally weighing 10.48 carats.
530 hours were spent for designing the project and 3,625 hours for making the beauty. "Tsarevna Swan" is a masterpiece created by the Ukrainian jewelry house of Labortas, valued at $1.3 million and now registered in the Guinness Book of World Records.
At the moment, the ring may be viewed at the exhibition in Kiev, but soon it will go on a world tour.
Veronica Novoselova, Rough&Polished correspondent in Italy
