The National Jeweler Magazine says the luxury goods market, once thought immune to the ebbs and flows of economic fluctuations, has begun to feel the effects of the worldwide economic slowdown and will likely enter a recession in 2009, according to a new report by business consulting firm Bain and Co.
Bain and Co., in cooperation with Altagamma, the flagship trade association for the Italian luxury goods industry, analyzed the market and financial performance of 220 of the world’s leading luxury goods companies and brands for the study.
The firm’s Luxury Goods Worldwide Market Study finds that the growth of luxury goods sales globally will slow sharply to 3 percent in 2008, compared with a 9 percent growth rate in 2006 and a 6.5 percent growth rate in 2007.
Looking ahead to 2009, the luxury goods market is expected to face its first recession in six years, as exchange rate fluctuations and economic turbulence eat into the confidence of many luxury consumers in mature markets. The study predicts as much as a 7 percent decline in global luxury sales for 2009 using constant exchange rates, in contrast to a possible 2 percent decline when using current exchange rates.
“The impact of the financial crisis will bring some sectors into a recession,” said Claudia D’Arpizio, a Bain partner based in Milan, Italy, and lead author of the study. “How much and how long depends in part on how companies react. The most resilient will be those with strong international and diversified brands.”
Since mature markets contribute nearly 80 percent of worldwide luxury sales, soft spending in each region is already taking a toll:
-The Americas, which saw 4 percent growth in luxury sales in 2007, will be flat year-over-year in 2008. This will be the first year of stagnation since spending retreated after Sept. 11, 2001. The impact of the «super euro» combined with the sub-prime crisis is taking consumers out of the more accessible segments of the market, which includes brands such as Tiffany and Coach.
-Europe remains the «first market» of luxury, representing 38 percent of the global market and turning in a record-setting 10 percent growth rate in 2007; however, the region can expect its growth to slow to 5 percent in 2008. Much of the region’s growth both this year and next will be propped up by Eastern Europe.
Meanwhile, according to (RAPAPORT) International Herald Tribune, Alexander Reebok, the managing director of Mercury, the biggest luxury goods group in Russia, said that Russia, one of the world’s fastest growing and largest luxury markets, is being hit by the financial crisis. After months of resilience, Reebok said, Russian shoppers had finally started to rein in spending on pricey items such as jewelry, and fashion apparel.
-Japan’s luxury market, 12 percent of the global total, is already in a luxury goods recession, decreasing by 2 percent in 2007 and by 7 percent in 2008, says the Bain study according to the National Jeweler. A weak yen versus the euro in 2007 has pushed Japanese luxury consumers toward smaller-ticket items such as fragrances and shoes, which drives down average ticket prices. The consumption crisis deepened in 2008, although the yen recovered versus the euro, showing a real recession.
According to the Japan Department Stores Association, in September falling stock prices and higher precious metals negatively affected jewelry sales which declined 6.4 percent year-over-year, sagging for the 19th consecutive month, says the report posted on the Idexonline portal. The Association attributes the successive downturns to rising consumer pessimism exacerbated by the collapse of U.S. investment bank Lehman Brothers.
The RAPAPORT agency’s information published on its Web site says the Nikkei Inc.’s Research Institute of Industry and Regional Economy released a report showing lowered interest towards jewelry purchasing as a possibly stable and long-term trend. The report says that younger males in Japan were less likely to give jewelry as a Christmas gift than their older peers. Asked if they had ever given jewelry as a Christmas present, 44 percent of single men in their late 20s said yes. That figure is 20 percentage points less than that of males age 30-44 who said they had given jewelry when they were young single men.
According to the National Jeweler, other findings of the Bain study include:
-Jewelry sector growth has dropped from 9 percent in 2007 to 2.5 percent in 2008 as jewelry sales in both Europe and the Americas have cooled.
-Watches (9 percent growth) seem to be the only category resilient to the economic downturn, largely due to emerging markets that are driving growth.
The National Jeweler says that despite a slower 2008 and the prospect of declines in 2009, Bain predicts that the luxury market will return to growth quickly as more and more consumers enter the luxury segment worldwide.
