Is Burberry Slump a Sign of Decline in Luxury Brands?

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It may not yet be a major earthquake, but there seem to be rumblings that luxury goods are undergoing some sort of seismic shift.

As Fashion Week was at its height in New York, instead of watching hemlines fashionistas were watching stock prices, as luxury apparel maker Burberry saw its shares drop over 20 percent Tuesday on issuing its first profit warning since 2008. It was an especially bitter pill to swallow for a brand that in January was named “International Retailer of the Year” and, in April, took the mantle of greatness from a bankrupt Aquascutum.

Bloomberg Businessweek labeled Burberry’s slide as “an end to a three-year rally in the luxury-goods industry as wealthy shoppers cut back on past indulgences.” While Burberry’s report may have helped pull down shares of luxury giant LVMH and other luxury brands such as Prada and Richemont, it does appear demand for luxury goods has been softening recently.

Harry Winston indicated last week that there was lower interest in its luxury products, and last month, Tiffany projected lower profits for the year. Stacey Cartwright, Burberry’s CFO, told Bloomberg Businessweek that she had spoken with other luxury goods marketers. “We know we are not alone in terms of what we’ve seen in the last couple of weeks,” she said.[more]

The problem for high-flying luxury brands is one of global proportions. Europe’s sagging economy and widespread financial problems is no help, of course. But it is flagging growth in Asia, particularly China, that has probably done the most damage. China has represented a strong market for everything from high-end apparel to jewelry, spurring sales for Burberry and other luxury brands. In fact, Asia was responsible for 37 percent of Burberry’s annual revenue. However, there’s more than slow growth to the Chinese story. According to The Wall Street Journal, “Wealthy consumers in China had previously proved resilient despite the country’s slowdown. But political uncertainty there… has made flaunting wealth more unacceptable. Chinese jet-setters have been travelling less, too, crimping Burberry’s sales in Europe.”

Still, not everyone sees the latest signals as indicative of long-term decline in the luxury good market. Sam Hart, an analyst with broker Charles Stanley, told the UK website This is Money, “There are rising disposable incomes amongst expanding middle-class populations in emerging markets, a growing number of high net worth individuals, the rising spending power of working women, and a growing propensity to travel.”

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