Luxury retailers are primed for next downturn

Reuters/Berlin

Many luxury brands are reaping the benefit of a decision to move into emerging markets like China before there was sufficient demand

Luxury retailers say lessons learned from the last economic downturn will enable them to ride out the next slowdown which they predict will not hit their customer base as much.Strong growth in emerging markets, broader and cheaper accessories lines and clear warning of the next recession are giving top executives at the biggest brand names confidence that they can steer through another storm.“Luxury brands have done a great job of learning from the last crises,” Jean-Christophe Babin, CEO of watchmaker Tag Heuer told Reuters on the sidelines of the World Retail Congress in Berlin week.Sales of luxury goods dropped in 2009 following the downturn. But they are now forecast to reach a record €185bn ($249bn) in 2011, according to consultancy Bain & Co, as companies like LVMH, Burberry and Hugo Boss bounce back.Many brands are reaping the benefit of a decision to move into emerging markets like China before there was sufficient demand, Deloitte’s global director of research Ira Kalish said.“Now there’s a dramatic increase in the number of people with substantial purchasing power who are very brand-conscious and very eager to buy luxury brands so now’s a great time to be in China,” he said.Back in Europe - where consumers are reeling from a debt crisis, turbulent markets and painful austerity measures - the luxury industry is realising it must cut its cloth to fit leaner economic times.Executives at Milan fashion week said fashion houses have already worked on prices and costs.And top brands are now widening their entry-level offer to satisfy all pockets and needs - taking pains to ensnare those on smaller budgets by offering accessories, or by working with high street names, such as Jimmy Choo for H&M.“It’s making luxury mandatory,” Tag Heuer’s Babin said, adding that the big brands like Tag Heuer’s parent LVMH had carried on investing in new products and stores “that make you spend even if you don’t want to.”Retailers and experts at the conference said mass market retailers were feeling most pain from current economic conditions as consumer confidence starts to wane in their markets.But they said they did not foresee a severe downturn and added that the high net worth individuals forming their customer base were likely to feel the pinch less this time.Deloitte’s Kalish said in the US people with relatively higher incomes were still doing fine for now as pay was rising and companies were still hiring at this end of the scale.“These are the people shopping luxury so for the luxury brands it’s not a bad environment at all.”Last time around these customers were hurt badly by falling asset and house prices and saw a dramatic loss of wealth.“We had to liquidate inventory, because we didn’t see the (last) recession coming,” Burt Tanksy, chairman of US luxury retailer Neiman Marcus, said.