Luxe is back for good...and profit

Friday, 22 July 2011
Luxury is back on fashion as predicted in a May report by Bain & Company. The document advanced that global luxury goods sales would increase 8 percent in 2011 in part because of renewed demand in the U.S., where department store sales are increasing and Europe, where tourism is strong (Bain expected the large Japanese luxury goods markets to recover soon from the effects of its recent earthquake).

Also, a Northeastern American University report showed earlier this year, many affluent Americans sidestepped the recent recession and, according to David Arnold, publisher of the luxury magazine Robb Report, the wealthy are no longer as embarrassed about flaunting their wealth as they were in 2009.

The Bain report also cited continuing growth in emerging markets like China, Russia, Brazil, and the Middle East. The Chinese market "skews very young (the average Chinese luxury consumer is around 30, whereas the average western luxury consumer is around 55)," the paper explains. "Thus, what happens there often affects what will happen in older (i.e. European and American) markets later."

Supporting the financial shine of luxury retailers ‘stocks, FnGuide explains that the so-called “luxury” mutual funds, a category that invests in makers of high-end brands, are posting sky-high returns, far outperforming all other mutual funds.

The Korean analysis firm highlights how funds invested in recession-proof luxury brands have seen their value soar, as demand for high-end products remains largely unaffected by lethargic global economic growth. Consumers in emerging nations have also helped buoy luxury brands.

In the same vein, Hermes raised its 2011 revenue forecast by 12 to 14 percent on growing demand in the U.S. and China for its silk scarves and leather handbags whereas just a week ago Burberry beat its revenue forecast for the first quarter of 2011. Another good example is Mulberry’s stock value increased on-year by 529.06% last year as its while other luxury big guys, such as Tiffany’s, Bvlgari and Coach also saw their stock values jump by 111.88 percent, 102.15 percent and 91.21 percent, respectively last year. Forbes also forecasted that the global luxury market will grow 8 percent this year to reach $276 billion, flouting the sluggish recovery of the U.S. economy and the sovereign debt crisis in Europe.

“Luxury goods are less affected by economic conditions, compared to regular consumer goods,” Kang Seok-hoon of Woori Asset Management. “Moreover, demand for high-end goods is increasing in emerging nations such as China and India, driving growth for those brands.”

Angela González-Rodríguez

Photo: Burberry Prorsum Spring/Summer 2012 Pre Collection

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