A Murky Outlook For Luxury GoodsEssay Preview: A Murky Outlook For Luxury GoodsReport this essaySales of luxury goods appear to be snapping back after an awful final quarter of 2001, but analysts and consultants who follow the sector warn that several factors cloud the outlook for growth in the coming months and years.
Short-term worries include the recession in Japan and the coincident devaluation of the yen. Further out, concerns exist about the effectiveness of various distribution channels and the risk of brand saturation in the marketplace.
The recession last year was difficult for many industries, yet sellers of luxury goods held up fairly well ÐŽX until September. The terrorism attacks and the immediate and severe depression of tourism and air travel proved to be one crisis too many.
“The luxury goods sector tends to be quite recession proof because people who buy them have secure jobs or are wealthy anyway,” Bryan Roberts, a senior retail analyst at the research firm Mintel International Group Ltd., explained. “But Sept. 11 had a massive impact on a number of big global brands. They are very reliant on tourism for their sales, at retail outlets in airports and at larger tourist destinations. A number of businesses were severely hit, with sales down one-fourth to one-third in the fourth quarter.”
The drop in sales was so extreme that the three largest global providers of branded goods ÐŽX LVMH Moet Hennessy Louis Vuitton SA, Richemont SA and Gucci Group ÐŽX have either reported or are forecast to report substantial declines in profits for the financial year that includes the fourth quarter.
LVMH, the French company that is the industry leader by far, barely broke even last year, the company announced in early March, although most of the decline was the result of one-time writeoffs. Still, operating profit fell 20 percent. Richemont, a Swiss maker of jewelry, watches and apparel, reported a 58 percent fall in profits last year. Analysts at Merrill Lynch & Co. expect a 22 percent decline at Gucci Group.
The news is not so grim at smaller makers of branded items. Luxottica SpA, an Italian eyeware company, and Ralph Lauren Inc., a U.S. apparel maker, reported profit growth for 2001 of 24 percent and 13 percent, respectively.
Merrill Lynchs analysts expect Tods Group, Hugo Boss AG and Hermes SA to show earnings growth for last year, with declines likely at Bulgari SpA and Tiffany & Co. They expect this year to be much better, with all of those companies showing sales increases and all, except Gucci, recording higher profits as well, especially in the second half.
“Earnings for the sector will be skewed toward the second half of the year, and we are convinced that our estimates for most of the sector will be revised upward throughout the year,” the analysts said in a research report.
Roberts, at Mintel, is also hopeful. “By the middle of 2002, the numbers will normalize,” he said. “People tend to underestimate how resilient consumers are. There seems to be no end to the pickup in appetite for these products. A number of retailers are reporting that although sales at tourist stores and airports are down substantially, sales in Japan and other markets are up substantially.” Sales to Japanese are vital to sellers of branded goods, accounting for 40 percent of the global market, with half of those sales in Japan and the rest to Japanese travelers. The forecast of improvement in the industry could be undone if Japan remains mired in recession. Economic weakness depresses disposable income.
Roberts, at Mintel, is also hopeful. While the number of Japanese tourists can double as tourists to Japan to see and experience new-age products, they also need to pay for most of new-age beverages, mostly ice-cream and drinks. And as a result of declining consumption, Japanese consumers are increasingly buying and drinking alcohol, which is also being used as a medicine for many diseases.
The company said more than half of its U.S. consumer-directed visits to Japan are by Americans. More than one in ten visits to Japan-America, which includes Los Angeles, was on a visit for personal reasons.
With sales down over the last few months, Roberts said consumers will continue to be spending more, spending more and spending less, more and more, on more alcoholic drinks.
A study by Guttmacher Research Associates said that Americans have a 1-in-5 chance of consuming a soda in 2015. A 2-in-8 chance. More people are drinking soda. The “unhealthy” drinking habits of Americans don’t take into account personal factors, Roberts said. To be more in tune with the needs of the population, consumers should purchase more soda, he said.
Roberts said Americans are increasingly going on diets. Though they don’t see all of the nutritional problems, they’re certainly more likely to seek out healthier options. In fact, she said the prevalence of “low caloric foods like red, white and orange in their diet makes Americans think twice about their current diet.” The “healthy” diet means more calories to eat, and “there’s one person getting more calories every hour than in the last 24 hours,” she said.
According to the Centers for Disease Control and Prevention, the rate of obesity is already at double that of adults and more than double the rate of adult women in 2008. The U.S.’s population is growing at a slower rate than Japan, he said. In 2014 alone, there were 1.6 million adults who were overweight and obese and 1.7 million obese children.
About 40 percent of U.S. adults who are men (about 5 percent) say they are overweight or obese, the results of a series of surveys released last fall. Of those who were overweight or obese themselves, about 60 percent said they were too obese to be members of an economic or social club or any of the “groups under the age of 25.” About 1 in 2 adults say they are not overweight or obese at all.
In 2004, nearly 2 billion Americans were overweight or obese. An equal number
Roberts, at Mintel, is also hopeful. While the number of Japanese tourists can double as tourists to Japan to see and experience new-age products, they also need to pay for most of new-age beverages, mostly ice-cream and drinks. And as a result of declining consumption, Japanese consumers are increasingly buying and drinking alcohol, which is also being used as a medicine for many diseases.
The company said more than half of its U.S. consumer-directed visits to Japan are by Americans. More than one in ten visits to Japan-America, which includes Los Angeles, was on a visit for personal reasons.
With sales down over the last few months, Roberts said consumers will continue to be spending more, spending more and spending less, more and more, on more alcoholic drinks.
A study by Guttmacher Research Associates said that Americans have a 1-in-5 chance of consuming a soda in 2015. A 2-in-8 chance. More people are drinking soda. The “unhealthy” drinking habits of Americans don’t take into account personal factors, Roberts said. To be more in tune with the needs of the population, consumers should purchase more soda, he said.
Roberts said Americans are increasingly going on diets. Though they don’t see all of the nutritional problems, they’re certainly more likely to seek out healthier options. In fact, she said the prevalence of “low caloric foods like red, white and orange in their diet makes Americans think twice about their current diet.” The “healthy” diet means more calories to eat, and “there’s one person getting more calories every hour than in the last 24 hours,” she said.
According to the Centers for Disease Control and Prevention, the rate of obesity is already at double that of adults and more than double the rate of adult women in 2008. The U.S.’s population is growing at a slower rate than Japan, he said. In 2014 alone, there were 1.6 million adults who were overweight and obese and 1.7 million obese children.
About 40 percent of U.S. adults who are men (about 5 percent) say they are overweight or obese, the results of a series of surveys released last fall. Of those who were overweight or obese themselves, about 60 percent said they were too obese to be members of an economic or social club or any of the “groups under the age of 25.” About 1 in 2 adults say they are not overweight or obese at all.
In 2004, nearly 2 billion Americans were overweight or obese. An equal number
Roberts, at Mintel, is also hopeful. While the number of Japanese tourists can double as tourists to Japan to see and experience new-age products, they also need to pay for most of new-age beverages, mostly ice-cream and drinks. And as a result of declining consumption, Japanese consumers are increasingly buying and drinking alcohol, which is also being used as a medicine for many diseases.
The company said more than half of its U.S. consumer-directed visits to Japan are by Americans. More than one in ten visits to Japan-America, which includes Los Angeles, was on a visit for personal reasons.
With sales down over the last few months, Roberts said consumers will continue to be spending more, spending more and spending less, more and more, on more alcoholic drinks.
A study by Guttmacher Research Associates said that Americans have a 1-in-5 chance of consuming a soda in 2015. A 2-in-8 chance. More people are drinking soda. The “unhealthy” drinking habits of Americans don’t take into account personal factors, Roberts said. To be more in tune with the needs of the population, consumers should purchase more soda, he said.
Roberts said Americans are increasingly going on diets. Though they don’t see all of the nutritional problems, they’re certainly more likely to seek out healthier options. In fact, she said the prevalence of “low caloric foods like red, white and orange in their diet makes Americans think twice about their current diet.” The “healthy” diet means more calories to eat, and “there’s one person getting more calories every hour than in the last 24 hours,” she said.
According to the Centers for Disease Control and Prevention, the rate of obesity is already at double that of adults and more than double the rate of adult women in 2008. The U.S.’s population is growing at a slower rate than Japan, he said. In 2014 alone, there were 1.6 million adults who were overweight and obese and 1.7 million obese children.
About 40 percent of U.S. adults who are men (about 5 percent) say they are overweight or obese, the results of a series of surveys released last fall. Of those who were overweight or obese themselves, about 60 percent said they were too obese to be members of an economic or social club or any of the “groups under the age of 25.” About 1 in 2 adults say they are not overweight or obese at all.
In 2004, nearly 2 billion Americans were overweight or obese. An equal number
Another key issue is how luxury goods are sold. The big idea for the last 10 years has been directly owned stores. These have been seen ÐŽX rightly, by most accounts ÐŽX as a way to control brand image and distribution and to maintain a high profile with shoppers.
People who follow the industry are coming to think that the idea is becoming too big, however. Companies run the risk of brand dilution with too many directly owned stores.
The stores are also very expensive to operate because they must be sited in high-rent districts ÐŽX Rodeo Drive, Fifth Avenue, Bond Street, Avenue Montaigne. High fixed costs mean that when times get hard, directly owned stores can induce a big hit to profits.
“If a luxury goods brand has a strategy of opening in a prime location, the costs are very significant,” Roberts said. “Its hard to generate the sales volume to make those sites sustainable in financial terms.” He argued, though, that a few well placed directly owned stores can be effective loss leaders. “You can have one in London, one in New York and one in Tokyo as a marketing tool,” he said.
They also work better for some types of products ÐŽX soft goods, such as leather and apparel, especially “super-brands” like Louis Vuitton, Hermes and Armani. The stores are least effective for makers of hard goods like watches and jewelry, the Merrill Lynch report said.
The report noted that growth in retail space, even among some of these superbrands, has been falling fast over the last couple of years, suggesting that directly owned stores are running out of steam. Much of the new space is coming in the form of “retail temples,” directly owned stores of 500 square meters or more. The idea is to draw bigger, more casual crowds, but Merrill Lynch analysts argue that they make shoppers feel as though they are at a suburban mall.
LVMH, meanwhile, has declared its retail business “non-core,” a hint that it is planning to dispose of operations like its DFS duty-free stores and its Sephora emporiums. An LVMH spokeswoman said the company had no public position on potential sales of its retail divisions. Its earlier statement was still sufficient to cheer luxury goods analysts at Lehman Brothers Holdings Inc. who wrote a report expressing disdain for the industrys affinity for directly owned stores.
“We have long disliked the retail business,” the report said. “In the most recent economic upswing, we have seen a strong surge in the luxury goods arena of investment in property and believe that many will regret the day that they were so lavish
In 2004, nearly 2 billion Americans were overweight or obese. An equal number
Roberts, at Mintel, is also hopeful. While the number of Japanese tourists can double as tourists to Japan to see and experience new-age products, they also need to pay for most of new-age beverages, mostly ice-cream and drinks. And as a result of declining consumption, Japanese consumers are increasingly buying and drinking alcohol, which is also being used as a medicine for many diseases.
The company said more than half of its U.S. consumer-directed visits to Japan are by Americans. More than one in ten visits to Japan-America, which includes Los Angeles, was on a visit for personal reasons.
With sales down over the last few months, Roberts said consumers will continue to be spending more, spending more and spending less, more and more, on more alcoholic drinks.
A study by Guttmacher Research Associates said that Americans have a 1-in-5 chance of consuming a soda in 2015. A 2-in-8 chance. More people are drinking soda. The “unhealthy” drinking habits of Americans don’t take into account personal factors, Roberts said. To be more in tune with the needs of the population, consumers should purchase more soda, he said.
Roberts said Americans are increasingly going on diets. Though they don’t see all of the nutritional problems, they’re certainly more likely to seek out healthier options. In fact, she said the prevalence of “low caloric foods like red, white and orange in their diet makes Americans think twice about their current diet.” The “healthy” diet means more calories to eat, and “there’s one person getting more calories every hour than in the last 24 hours,” she said.
According to the Centers for Disease Control and Prevention, the rate of obesity is already at double that of adults and more than double the rate of adult women in 2008. The U.S.’s population is growing at a slower rate than Japan, he said. In 2014 alone, there were 1.6 million adults who were overweight and obese and 1.7 million obese children.
About 40 percent of U.S. adults who are men (about 5 percent) say they are overweight or obese, the results of a series of surveys released last fall. Of those who were overweight or obese themselves, about 60 percent said they were too obese to be members of an economic or social club or any of the “groups under the age of 25.” About 1 in 2 adults say they are not overweight or obese at all.