Golden age looms for European luxury goods

PARIS, March 12, 2006 (AFP) – The international luxury goods sector is on the brink of an unprecedented growth spurt, buoyed by the emergence of a new class of wealthy clients from China, Russia, India and Brazil.

In just a few years the major luxury-goods companies have opened more than 300 shops in China, where the leather goods house Louis Vuitton plans to open two or three shops annually in the coming years.

By 2011 the Chinese are expected to overtake the Japanese as the world’s biggest consumers of luxury goods.

“China is undoubtedly the driver of growth in demand for luxury goods. It is doing for the market now what Japan did 15 years ago,” says Maria Menendez, analyst with the Swiss bank Lombard Odier Darier Hentsch.

Menendez believes the annual growth rate for the sector, excluding US brands, should in the medium-to-long-term reach seven percent.

“And that’s just the average,” she continues. “For some less mature sectors such as jewellery, annual growth will top nine percent.”

The Colbert Committee, an association of 69 French luxury goods businesses including Cartier, Chanel, Hermes and Krug, says demand took off in 2002, the year after China joined the World Trade Organisation.

Then, the Chinese market accounted for between one and three per cent of the turnover of the brands that make up the committee. Now, the figure is between five and seven per cent.

Lombard Odier estimates that eight per cent of Swatch’s sales and seven per cent of Vuitton’s sales are now in China.

“We have been drawn to Asia by the rapid development there, predominantly in China but also in Korea and Thailand. Rates of growth there have far exceeded of our expectations,” says Elisabeth Ponsolle Des Portes, chief executive of the Colbert Committee.

She believes China’s growth is set to continue, with between 10 million and 30 million potential luxury-goods consumers, “young, well educated customers aged between 18 and 35 who buy domestically and travel internationally”.

India has between 10 million and 30 million potential luxury-goods consumers and predictions for growth there are every bit as enticing as for neighbouring China.

It is the same story in Russia, where sales recorded by the luxury-goods companies that make up the Colbert Committee rose by 34 percent in 2004.

At the same time, the luxury-goods sector can count on continued demand from its traditional markets in Japan and the United States. The latter accounts for around 20 percent of sales for a group such as French retailer PPR.

After a series of major crises that included the Asian economic downturn, the September 11 terrorist attacks, the war in Iraq and SARS, the luxury goods players enjoyed a resurgence in 2004.

But since 2005 they have been taking full advantage of their ability to adapt to unforeseen events though diversifying internationally, taking greater control of distribution and improving innovation.

The record profits of LVMH, up 21 percent in 2005, or L’Oreal, up 37 percent, and the uplift in sales of big brands including luxury yachts and champagnes, mostly in double figures, attest to their efforts.

Bernard Arnault, head of LVMH, is more than happy to give away the secret of his firm’s success: “a strategy of permanent innovation combined with quality and tradition.”

As Ponsolle Des Portes of the Colbert Committee concluded: “Quite apart from its extraordinary growth potential the luxury-goods industry, the embodiment of added value, has a glittering future thanks to its unique savoir-faire.”

Only in Europe is the growth flat.

“I am more worried about a strong euro than about any potential avian flu pandemic,” Arnault said recently. France’s luxury-goods industry is labour intensive and dependent on French-based manufacturing sites.

Subject: French news