As the global economic recovery gathers pace, there has been a rise in luxury sales, including high-end jewellery, but the rises are not uniform across all markets, as noted by experts of the Antwerp World Diamond Center.
According to Antwerp Facets, reports by leading business consultants and financial results released recently by major jewellery retailers paint something of a mixed picture regarding the state of the luxury jewellery market, although the overall impression appears to be an upward trend.
Are the better-off returning to buying big-ticket items, or are they remaining uncertain in the face of an uneven economic recovery in the United States and Europe? And is their apparent reluctance to start buying big again being offset by confident buyers in China and India?
According to global business consulting firm Bain & Co, worldwide luxury goods sales are projected to have increased by 10 percent this year, reaching 168 billion euros and close to the record set in 2007 of 170 billion euros. The consulting group said the worldwide crisis in worldwide luxury goods sales came to an end in the fourth quarter of last year, ending a first-ever full year decline in sales, of 8 percent.
Bain & Co made the statements at the annual conference of the Fondazione Altagamma, the Italian luxury goods industry trade association, where the adviser to the global luxury goods industry released the 9th edition of its Luxury Goods Worldwide Market Study.
Bain said the market rebound was due to several main sales drivers, including double-digit increases, on average, in the second and third quarter; a rapid return of consumers to brands’ direct-owned stores; continued strong growth in China; a rebound of sales in the United States; and particularly strong sales of leather, shoes, and accessories.
“While the sector is not entirely out of the woods, we see strong growth signals in key markets and channels that suggest a full rebound in luxury goods sales to pre-recession levels,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study.
Despite 40 percent of the forecast increase in sales revenue being due to the depreciation of the euro, even at constant exchange rates versus last year, the projected 2010 growth constitutes a 6 percent year-over-year increase. The final quarter of 2009 saw an end to a six-quarter long decline in year-over-year luxury sales, and was flat compared to the same quarter in 2008.
Starting in 2010, luxury sales increased 6 percent in the first quarter, 16 percent in the second quarter, 13 percent in the third quarter, and are seen rising 5 percent in the fourth quarter. Bain further forecasts growth of 3-5 percent in 2011 as the luxury market returns to a more level growth rate. However, the 2011 forecast assumes a constant exchange rate, and may increase or decrease depending on what happens to the euro and the dollar.
The rebound in 2010 was largely dependent on the performance of retail stores owned and managed directly by luxury brands, Bain’s research shows. Sales in this channel increased by 20 percent compared to 6 percent increases in the department store and wholesale channels. And keeping pace are luxury sales online, which are over-performing overall web sales and also will grow at a 20 percent pace in 2010, to 4.2 billion euros.
Bain forecasts that sales in China will achieve 30 percent year-over-year growth for 2010, reaching 9.2 billion euros. China is positioned to become the world’s third largest country market by the middle of this decade. Overall, the Asia-Pacific region, except Japan, will see 22 percent growth in 2010. U.S. sales will increase by 12 percent, to 46 billion euros, representing the largest absolute revenue increase for the year.
Growth in Europe in 2010 will be a more modest 6 percent, Bain estimates, to 62 billion euros. Only Japan sees continuing decline, slipping by 1 percent in 2010 as mature luxury consumers reduce their spending and as younger shoppers avoid traditional luxury brands.
The study finds this year's luxury rebound lifting all core product categories in the sector, with the category that includes watches and jewellery projected to grow by 13 percent.
“We’ve seen a number of new behaviors and trends emerge now that the crisis is reversing,” concluded D’Arpizio. “The luxury shopper of this decade is more likely to be Chinese, more likely to be male, and more likely to be young. Brands that meet the needs of these new segments will be in the best position to keep growing for the next ten years.”
Less upbeat, about the U.S. market at the very least, was the Luxury Institute, which has said in its most recent report that wealthy American consumers continue to be highly cautious albeit less so than a year ago.
The Luxury Institute discovered that high net worth consumers were six times more likely to reduce their spending as they were to spend more on full-priced luxury goods and services for the duration of 2010.
In the group's "State of the Luxury Industry - Wealth Survey" it discovered that spending on luxury goods would be lower for 36 percent of high net worth respondents through to the end of this year, and only 6 percent would be spending more. Already 37 percent report spending less on luxury items in 2010 and 7 percent reported spending more.
One in five wealthy shoppers contended that they would spend more for the rest of the year on luxury goods and services that have been reduced in price. "Some luxury firms may justifiably disavow discounting for fear of its effect on brand value, but 38 percent of wealthy consumers say that a 'significant discount' will positively influence their decision to purchase," the Luxury Institute report concluded.
The Luxury Institute said consumers were looking to spend their money on what they need, rather than what they want and would place pressure on jewellery purchases leading in the critical Christmas season.
According to the Luxury Institute, one-third of rich consumers said that they would be reducing spending on jewelry, compared with 29 percent who declared that they would reduce home furnishing purchases, 27 percent would cut back on watch spending, 26 percent would reduce spending on handbags and 24 percent would cut back on car purchases. By contrast, areas that should see above-average increases in spending include leisure travel, dining, fitness and technology.
As for the evidence provided by retailers, luxury goods company Richemont posted a 37-percent rise in sales to $4.5 billion in its fiscal first half ending September 30, while profits jumped 87 percent to $883 million. The firm reported that jewellery boutique sales rose 32 percent to $2.2 billion.
The retailer described sales of high-end jewellery as "good," while sales of watches were also strong. Its Cartier and Van Cleef & Arpels brands saw high levels of growth during the six-month period. Group sales as measured by constant exchange rates rose 4 percent in Japan, by 37 percent in the Americas, 36 percent in Asia-Pacific, and 23 percent in Europe. Richemont said growth also picked up in Russia and the Middle East, although at a slower pace. The European market is still the most important for Richemont, providing 38 percent of total sales. The Asia-Pacific market accounts for 36 percent of the company’s sales, while the Americas accounts for 15 percent and Japan for 10 percent.
"Richemont’s maisons were able to benefit fully from this improved trading environment, further enhancing their leading positions in jewelry, watch making, writing instruments and accessories,” said executive chairman Johann Rupert. Sales continued to be strong in October, with sales for the month being 36 percent higher than October last year at actual exchange rates, Rupert said. "For the second half of the financial year, we expect the high rate of growth in sales seen in the year to date to slow as a consequence of exchange rate movements and the more challenging prior year comparatives," he added.
Meanwhile, Italian luxury jewellery retailer Bulgari reported a 15 percent rise in revenues for the third quarter rose to $369 million, while net profit more than doubled to $23 million for the third quarter ending September. Sales of jewelry, measured by comparable exchange rates, jumped 13.7 percent to $164 million, while sales of watches dropped 10.9 percent to $73 million.
The increase in Bulgari’s revenues from jewellery sales was aided by a strong showing from Bulgari's B.zero1 line and the Serpenti collection. Bulgari said sales as measured by local currency rose 11 percent in Europe, and by 7.7 percent in Asia.
Bulgari CEO Francesco Trapani said the firm’s good financial results were due to its "careful inventory containment" policy and an investment strategy that was selective. He said the company was continuing to improve in a range of aspects, including products, image, investment control, indebtedness, inventory and costs.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
