Luxury sector faces 20% fall in sales revenue

The luxury sector faces a 15 per cent to 20 per cent fall in sales revenue during the first two quarters in 2009 (at constant exchange rates), shrinking to €153 billion (Dh726.2bn) from €170bn in 2008. According to a semi-annual update of the annual Bain and Company Luxury Goods Worldwide Market study, the luxury market will begin stabilising in the second half of the year, resulting in a net decline of 10 per cent for 2009. The semi-annual survey was released by Bain and Company in response to the economic downturn. "This year's decline is hitting both the top and bottom lines of luxury goods companies," said the study's author Claudia D'Arpizio, a Bain partner and luxury goods expert based in Milan. "Luxury shoppers are spending less, travelling less and feeling less confident. Luxury goods producers are also feeling the additional squeeze of intense pricing pressure and markdowns from retailers and high-end department stores," she said. Bain estimates a 15 per cent decline in the Americas and 10 per cent decline in Europe and Japan. These major luxury markets account for more than 80 per cent of worldwide sales. Talking about the impact of the recession on their business globally, Jerome Lambert, Chief Executive Officer, Jaeger-leCoultre, told Emirates Business : "The global downturn has definitely reduced our growth. We had a strong growth in the past five years and now it has slowed down." Amit Malani, Sales and Marketing Director, Harman Middle East, said: "Our business has been affected globally, particularly in the West. Apart from high-end home electronics we are the largest manufacturer as well as supplier of luxury audio systems. All the big players in the car industry such as Rolls-Royce, Audi, Lexus, BMW use Harman infotainment systems. So when the luxury car market gets hit, we get affected." The study goes on to say that the smaller luxury market shows more promise, with projected growth of seven per cent in China and two per cent in the Middle East. Lambert said: "The Middle East is an upcoming market. It accounts for four per cent of total turnover and we have been doing very well here for the last three years." Malani said: "In emerging markets such as the Middle East, India, China and Russia we are growing. In the Middle East, we grew by 46 per cent in 2008 and we plan to grow 25 per cent in 2009. We opened a store in the Dubai Mall in December and with that store we hope to add 10 per cent to growth. One has to keep in mind that this slowdown is not permanent." However, the study goes on to say that these gains in the emerging markets will provide only a small offset against steep declines in major markets. Among the major luxury product categories, apparel will be hit the hardest, declining by 15 per cent. Jewellery and watches will decline by 12 per cent, while leather goods, shoes and accessories will fall by 10 per cent. Luxury cosmetics and fragrances will be the most resilient categories in 2009 with sales of €22.4bn for cosmetics and €18.4bn for fragrances, both comparable to 2008 levels. The differences between categories reflect a trend among luxury shoppers to switch to lower price point items, while still remaining loyal to top-of-mind brands. "One of the biggest changes we have seen in consumers is that 'price' and 'luxury' are no longer synonymous," said D'Arpizio. The study explores further deep changes in consumer behaviour and attitude as luxury shoppers adjust to a global recessionary psychology. According to the study, "accessible luxury" consumers, that is consumers who are newly entering the luxury market are purchasing items at the lower end of brands' product lines. While the most affluent, or "absolute", luxury shoppers have begun to focus more on the intrinsic quality of materials and the durability of luxury items instead of on fashion content. Also, experiences are in. Consumers who value the dream offered by luxury brands, called "aspirational" consumers, are increasingly motivated by service and in-store events as much as by merchandise. Many shoppers across all luxury segments now wait for deeper discounts at the end of the season, or seek out discounts at department stores and outlets. There has also been a shift in the spending. Customers are spending discreetly. Ostentation is out. Consumers are gravitating to more discreet products, preferring understatement in what they buy and how they shop in luxury stores. This is validated by the recently released World Wealth Report 2009 by Knight Frank and Citi Private Bank, which in an expert comment on luxury and fashion, said: "When fashion guru Karl Lagerfeld of Chanel says that bling is over and has been replaced by something he terms the 'new modesty', you know that even in the rarefied world of the super rich and stylish the credit crunch is having a dramatic impact. From fashion to design, the emphasis is on recessionary luxury, and there is a tangible shift towards something more considered in terms of co