FT: New World of Luxury Products

Wednesday, 26 Dec 2012 10:27 AM

By Michael Kling

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A strange thing has happened in the world of luxury products. There now appear to be separate realities in the world of luxury brands.

Instead of bundling luxury retailers together and making a one-size-fits-all sector call as they have in the past, investors must reach brand-by-brand decisions, according to the Financial Times.

For instance, Tiffany reported a 30 percent drop in third-quarter earnings, Louis Vuitton reported the softest growth in 12 years, and Burberry issues a profit warning in September, the Times reports. Yet Hermes raised its sales and profitability targets and Prada Group's earnings through September of this year were up 50 percent over last year.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Ubiquity is “the new buzzword for luxury,” HSBC analysts wrote in a note, according to the Times. How prevalent and obtainable the product is and how visible the brand is are now the important factors. Lower prices make products more accessible, while rarity — or at least the appearance of rarity — can help create demand.

"You need the very unique pieces, not just logo," François-Henri Pinault of luxury goods firm PPR told the FT. "Luxury is an entirely different business now than it was a decade ago. You cannot use the past to understand its future."

While some firms desire exclusivity and want their products to be rare, others prefer more entry-level products to attract new customers to their higher-end styles over time.

"When we look forward at growth prospects for the major luxury players we instead see more diverging perspectives," Luca Solca of Exane BNP Paribas told the FT.

Some companies have struggled with slowing growth in China, which is seen as the great new frontier for the business.

However, Claudia D'Arpizio, a partner at Bain & Co., called concerns about weakness in the luxury market "overblown," according to The Associated Press.

A recent Bain study forecasts the global luxury goods market for clothing, accessories, jewelry, cosmetics and art will grow 10 percent this year to 212 billion euros ($274 billion) from 192 billion euros in 2011.

Chinese consumers became the top luxury buyers this year, responsible for 25 percent of global purchases, the AP reported, followed by Europeans (24 percent), Americans (20 percent) and Japanese (14 percent).

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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