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Luxury goods set for another record year

Paris, May 3, 2011

The outlook for the luxury goods market has improved significantly in recent months, boosted by a stronger-than-expected rebound in the United States and Europe and surging demand in China, consultancy Bain & Co said.

Bain raised its 2011 growth forecast for luxury sales to 8 percent at constant currencies from a 3-5 percent range, after recent sales data from groups such as LVMH, Burberry, PPR and Tod's comfortably beat market expectations.

"The surprise was mainly in the US and Europe," said Claudia d'Arpizio, a Bain partner in Milan and lead author of a study carried out with Italy's luxury trade body Altagamma.

Strong tourist flows in Europe coupled with a pick-up in sales at US department stores contributed to the recovery, Tuesday's report said.   

If customers tightened their purse strings in 2009, spooked by the financial crisis, and 2010 was the year they started loosening them again, 2011 should see a return to normal luxury goods consumption, in line with historical trends.

"Luxury shame is now over," d'Arpizio said, adding that customers were becoming less hesitant to pay full price.

Bain also said it believes luxury sales rose 8 percent last year at constant currencies, up from a previous 6 percent estimate. In nominal terms, global luxury goods sales grew 12 percent last year, against a previous 10 percent.

Bain's findings mean that global luxury sales growth will not slow in 2011, as previously thought, in spite of Japan's earthquakes and nuclear crisis and the tough comparative basis of 2010 which was a catch-up year for many luxury brands.

The consultancy estimated luxury sales would grow 5-6 percent in 2012 and 2013, led by emerging markets buyers and resilient demand in Europe and the United States.

But China, set to become the biggest luxury goods consumer within five years, will be the top contributor to growth.   

Buyers from mainland and greater China, when counting those at home and abroad, are already the world's No.2 luxury customers behind those from the United States, Bain said.

Luxury sales in mainland China rose 30 percent in 2010 and are forecast to grow 25 percent at constant currencies this year to 11.5 billion euros, while US luxury sales are set to grow 8 percent to 52 billion euros in 2011 after rising 10 percent at constant currency terms in 2010 to 48.1 billion, it said.

Japan, which used to be the world's biggest luxury goods buyer and is now in third place behind mainland and greater China combined, is expected to see luxury sales fall 5 percent this year at constant exchange rates to 17 billion euros.

LVMH sales in Japan fell 9 percent in the first quarter and 25 percent in March alone, though Dior Chief Executive Sidney Toledano last week said sales in Japan were on the mend.

D'Arpizio favoured Brazil over India as the next big source of growth after China, as India's lack of retail space and preference for traditional dress and home-made jewellery made it tough for European brands to penetrate.

"We see Brazil being a major engine of growth going forward, but of course not of the same magnitude as China," d'Arpizio told Reuters in an interview.

Brazil's luxury sales totalled 1.8 billion euros in 2010 and are set to grow 10-15 percent between 2010 and 2013, Bain estimated.
 In Russia, Bain sees sales of 4.8 billion euros in 2010, growing 5-10 percent by 2013.

The Middle Eastern market, worth 4.1 billion euros in 2010, is likely to grow 10-12 percent over the same time span.   

Overall, Bain said global luxury goods sales were set to reach a record 185 billion euros this year compared with 172 billion in 2010.

In 2009, the worst year on record for the industry, global luxury sales fell 8 percent at constant exchange rates and 11 percent in nominal terms, with much of the decline concentrated in the United States and Southern Europe. - Reuters




Tags: China | Europe | Luxury goods | Bain |

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