Luxury Goods Market Set to Slump, Report Says

Written by: Tsveta van Son
October 16, 2012

On 15 October 2012, the Guardian reported that growth in the luxury goods market was going to slow in 2012, with Chinese consumers, the luxury industry’s main engine of growth, cutting back.

**Global Luxury Sales Growth to Slow**
The Guardian quotes the results of a new report by the business consultancy Bain & Company and the Italian luxury goods trade body Altagamma indicating that global luxury goods sales would grow by as little as five percent in 2012, compared with 11 percent last year. The European market in particular is forecast to grow by five percent, half last year’s rate with Italy and Spain seeing the biggest declines. The report also showed that the luxury goods market would grow by four to six percent annually between 2013 and 2015, excluding currency swings.

“Concerns about market weakness are somewhat overblown,” points out Claudia D’Arpizio, a Milan-based partner at Bain & Co and lead author of the study, as quoted by Bloomberg. “But we are seeing sharp disparities between brands that are not keeping up with the quickening pace of change in the market and those that are adjusting to shifts in tastes and demographics.”

!m[Chinese Shoppers Cutting Back On Luxuries ](/uploads/story/584/thumbs/pic1_inline.png)The study also found that accessories had become all-important, with leather goods and shoes becoming the largest slice of the market. Leather goods sales are also forecast to post the fastest growth, namely 16 percent, followed by watches with 14 percent, whereas shoes and jewellery are seen as growing by 13 percent.

**Chinese Consumers Spend Less at Home, Give Fewer Gifts**
The forecast growth slowdown in the luxury goods market is attributed to Chinese consumers, who are reportedly spending less at home and are giving fewer gifts due to the imminent change in government unsettling consumer sentiment. The market of mainland China is expected to grow by 18 percent this year, relative to a 30 percent and 35 percent growth in 2011 and 2010, respectively. Chinese consumers are the luxury industry’s main driver of growth, with the Guardian reporting that Chinese shoppers account for one in four purchases of luxury goods. In addition, they make up half of the luxury purchases in Asia and nearly a third of those in Europe.

The FT quotes Gildo Zegna, CEO of Italian fashion house Ermenegildo Zegna, as saying that companies will have to adjust to 10-15 percent growth in China rather than the 20-30 percent growth which many brands enjoyed in recent years.
**LVMH Confirms the Downtrend**
The luxury market growth slowdown is also confirmed by LVMH (EPA:MC), which makes Louis Vuitton bags, Dior perfume and Dom Pérignon champagne. As noted in the FT article, the Paris-based company reported that organic sales growth, which excludes currency swings and acquisitions, had fallen to just six percent in the third quarter, relative to 15 percent during the same period in 2011. Although the company did not provide a geographic breakdown, it noted that the US “continued to demonstrate solid momentum”, whereas the “business environment in Europe and Asia was mixed”.
LVMH sales were “disappointing” in high-margin divisions, commented Thomas Chauvet, an analyst at Citigroup Inc. (NYSE:C), as quoted by Bloomberg. Mr Chauvet also added that negative investor sentiment toward the luxury-goods industry was “likely to prevail near term.”

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