Next year is shaping up to be mixed, at best, for luxury goods. Continuing economic woes in the Eurozone, a flagging Japanese economy, and slow recovery in the U.S. will likely lead to modest spending on luxury brands in those regions.
At a recent fashion summit in Florence, Italy, luxury designers were downbeat. Michele Norsa, CEO of Salvatore Ferragamo, the Italian shoemaker, said: “Markets are very volatile. We must keep a cool head and define our forecasts day by day. …The first part of the year will be slower. In the second part there will probably be a recovery. These are the signs we are receiving from all our markets.” Michele Tronconi, the head of Sistema Moda Italia (SMI), Italy’s fashion body, added, “Orders of goods to be delivered in the coming months have shrunk and I don’t expect this trend to change soon.”
Indeed, Italy is a microcosm of Europe’s slide when it comes to luxury goods. Luca Solca, who heads luxury goods research at the Exane BNP Paribas investment group said Italy’s luxury goods sales have taken an “abrupt hit” due to the country’s austerity measures. Sales of luxury goods are expected to decline nearly 1 billion euros by year’s end in Italy despite solid tourism. Globally, sales of luxury goods should grow about 5 percent in 2012 vs. 13 percent last year according to a report by consulting firm Bain & Co.[more]
The decline affects all luxury brands, but certain segments of the luxury market are feeling the pinch more than others. The champagne industry, for example, highly vulnerable to demand in the European market, has seen a drop in sales of 5 percent in the first nine months of this year. Over the next three years, the industry is forecasting growth of a mere 1.2 percent. Half of total sales are attributed to French consumers and that’s a large part of the problem. Marc Sibard, owner of Parisian wine show Les Caves Auge, told The Wall Street Journal, “In 2011, France had not fully entered the crisis, but now, it’s getting real. Champagne is a festive drink, and this year, there’s not much to celebrate.”
Meanwhile in China, which has been a booming luxury market, the situation is more complex. New leaders of the Chinese government there are said to be sensitive to the conspicuous excesses of the past regime. “The new leadership understands that the Communist Party is having an image crisis, because the public, through the development of social media, has cast more and more doubts on the corruptive and lavish lifestyle of the Communist Party cadres,” said Dr. Chen Gan of the National University of Singapore. As a result, Chinese leaders are doing away with such public shows of extravagance as red carpets and elaborate flower arrangements.
The new approach of China’s ruling government won’t change Chinese attitudes toward luxury immediately, however. A study by the Luxury Institute suggests 43 percent of wealthy Chinese consumers plan to spend more on luxury products in the coming year, vs. 10 percent of Japanese and 9 percent of Americans. As one example of the Chinese taste for expensive goods, sales of luxury cars skyrocketed over the past two years, although that trend is expected to cool. Recent research indicates that Chinese luxury consumers will account for 40 percent of the worldwide new luxury market between 2010 and 2015.
In fact, the real future for luxury goods may not be in Europe, the U.S., or Japan, but rather in emerging markets. Research by Euromonitor International suggests it is the “strength in emerging economies” like Brazil, Russia, India, and China, commonly referred to as the “BRICs,” that will be driving demand for luxury goods. The BRICs “now account for 11% of total luxury sales, up from just 4% in 2004,” according to Euromonitor International. “However by 2017 this figure is set to increase further by 78% in real value terms to reach US$59 billion, representing almost 16% of the global luxury goods market.”