With Asian stock markets in free fall last week and the steady decline in value of Russia’s two main exchanges, luxury and fashion brands fear they might have to wave goodbye to any growth they were seeking from emerging markets.
But will they?
Despite the grim news from nearly all corners of the world, some analysts and industry principals said brands may not suffer that much from any downturn in areas such as Russia, China, India and the Far East.
“In the shorter term, we’re likely to see faster economic growth in Asia. Europe, the U.K. and the U.S. are already in recession, so the potential for growth is better in the East,” said David Stoddart, retail analyst at Altium Securities in London.
“Will that growth be as fast as we hoped 12 to 15 months ago? Probably not. Some emerging markets will be more affected than others. As a generality, life will be tougher for the midmarket brands,” he added.
According to a recent report by the Swiss bank Vontobel, there will be low double-digit economic growth in Asia, not including Japan, next year. “We now only anticipate growth in Asia excluding Japan, to be up 10 percent, whereas other regions will feel the recession.”
Markets like Brazil, Russia, India and China were currently “insignificant” for luxury goods companies, and particularly the Swiss watch industry, due to high duties and luxury taxes, even if they have potential, Vontobel analysts Rene Weber and Claudia Lenz wrote. Maureen Hinton, a lead retail analyst at Verdict Research in London, said any crisis in Asia would have to get “very, very deep” before the fashion and luxury brands were truly impacted.
“Japan has been a difficult market for quite some time, but China has been doing well, and there is still huge potential because of the sheer numbers of wealthy people,” Hinton said, adding the most insulated brands would likely be the ones selling high-end watches and jewelry. “In times like these, lots of people want to invest in precious metals. The trend is moving away from bags and accessories into statement jewelry. Companies from Compagnie Financière Richemont to Gucci are pushing jewelry and watches and that will help them in the long run.”
On Friday, gold prices hit a 10-week high, with prices touching $937 an ounce.
A spokesman for Richemont, parent of brands including Cartier, Van Cleef & Arpels and Dunhill, said 25 percent of the company’s sales come from Asia, with a further 13 percent from Japan. “Asia is a major growth market for us with an expanding clientele,” he said. “And we are not immune to what is going on. We just have to hope the market settles, and that confidence comes back.”
Both Paul Smith, who has a longtime thriving business in Japan, and Anya Hindmarch, who is rapidly expanding throughout the Far East, are so far undeterred by the recent crises there.
“With the company having a significant portion of our global business in Japan, we have obvious exposure. That said, until buyers write their January orders we can’t make projections,” said a Paul Smith spokeswoman. “We are going forward with more shop openings in Japan, South Korea and India in 2009.”
An Anya Hindmarch spokeswoman said the company’s sales are spread across a number of markets, and there is no overexposure in any particular one. The company is also going ahead with planned shop openings in Asia, Russia and the Middle East.
“We have stores opening in the next six months in markets including Japan, China, Singapore, Russia and the Middle East,” she said. “People will certainly think twice about investing in a new house or car, but will still spend on a new handbag to treat themselves. The luxury market is gong to shrink, though, and people will feel it’s distasteful to spend huge amounts of money on very expensive bags.”
Meanwhile, in Russia, Moscow’s main markets, the Micex and RTS Index, have both lost around 70 percent of their value since May. Last week was particularly grim. The Micex, where most transactions take place, was repeatedly closed after excessively volatile trading.
The bad news, however, has yet to dampen luxury shoppers’ spirits. “Taking the crisis into account, we’ve changed our expectations a little, and we’ll reach the results we were hoping for a little later than planned. But people haven’t stopped wearing clothes,” said Yelena Starikova, commercial director for designer Alena Akhmudullina, a rising star who opened her first Moscow boutique in mid-September.
“Retail hasn’t been affected too badly yet,” said a Moscow hedge fund manager who spoke on condition of anonymity. “In Russia, the equity market has imploded and I think the trickle down effect will be a little while in coming.”
Natalya Zagvozdina, a retail analyst at the Moscow investment bank Renaissance Capital, isn’t expecting disaster to strike any time soon. “We might see a few firms struggling and going bankrupt because most are overleveraged,” she said. “Consumer durables and nonperishables will be down in the fourth quarter.”
Meanwhile, despite the market turbulence on Friday, most major fashion and luxury stocks resisted the slump, and none saw any major downturn. The U.K.’s FTSE 100 lost 8.9 percent to 3,932.06, while France’s CAC 40 retreated 7.7 percent to 3,176.49.
Richemont closed down 2.7 percent at 39.60 Swiss francs, or $35.36 a share, while Marks and Spencer Group plc closed down 8.75 percent at 218 pence, or $3.71; Burberry, down 2.05 percent to 311.25 pence, or $5.30, and French Connection closed up 0.83 percent at 60.50 pence, or $1.03.
Italy’s benchmark index S&P/MIB fell the most this century — over 9 percent — before trimming losses and closing down 7.6 percent. Following the decline, which led to a number of companies being suspended, securities market regulator Consob banned all short sales of stocks until the end of the month.
Fashion group IT Holding SpA and jeweler Damiani were among the worst hit. IT Holding dropped back 9.2 percent to 0.22 euros, or 30 cents at current exchange — more than wiping out Wednesday’s gains — while Damiani fell 11.5 percent to 1.13 euros, or $1.54.
The remaining fashion and luxury goods stocks listed in Milan all fell, despite outperforming the market, with the exception of jeweler Bulgari and Mariella Burani Fashion Group. Bulgari closed up 1.6 percent to 4.86 euros, or $6.64, while Mariella Burani edged up 0.5 percent to 14.13 euros, or $19.31.