By  on October 27, 2006

MILAN — Given the numbers, Italian luxury goods executives had plenty of reasons to be upbeat at a meeting of the Altagamma association here last week.

A study by consultants Bain & Co. found that worldwide luxury goods sales rose 9 percent last year to 146 billion euros, or $183.4 billion at current exchange rates, which was defined as a "solid" increase by Bain partner Claudia D'Arpizio because it was not influenced by currency fluctuations. For 2006, Bain & Co. expects an increase of between 8 percent and 10 percent, reaching sales of between 158 billion and 162 billion euros, or $198.5 and $203.5 billion, respectively.

Last year, both "old" and "new" markets grew, and the U.S. stood out as the largest single area, accounting for 36 percent of global sales and totaling 52 billion euros, or $65.3 billion, a 9 percent increase in 2005 compared with the previous year.

European brands dominated in the U.S., and accessories in that market also showed a rapid growth: leather goods grew 21 percent, followed by shoes and jewelry, which rose 11 percent each.

Tourists from Russia, China and India helped sales in Europe grow 7 percent — a market worth 50 billion euros, or $62.8 billion. "Travel retail continues to be the main force around the world," said D'Arpizio. Japan, a market where brand names remain key, grew 11 percent, totaling 23 billion euros, or $28.8 billion, driven by the cachet of Italian and French brands, the boost in accessories and by accessible luxury labels. The Asia-Pacific market grew 16 percent, totaling 15 billion euros, or $18.8 billion. In particular, China and India showed a hefty 70 percent and 25 percent hike, respectively.

Apparel accounted for 32 percent of the luxury goods market and women's ready-to-wear grew 9 percent, led by the performance of designer signature lines, and overall leather goods went up 18 percent and even 20 percent in Asia and the U.S. "Superluxury is picking up in all categories," said D'Arpizio.

During a roundtable discussion about the study, executives from companies such as Valentino, Luxottica and Alberta Ferretti expressed confidence that their strategies would yield even more positive results this year compared with last year."Eyewear is a new, profitable category — we are still honeymooning with the market," said Andrea Guerra, chief executive officer of Luxottica.

Matteo Marzotto, president of Valentino SpA, said that the company's turnaround was "quite good" in 2005, but he was particularly pleased with the performance expected this year. And according to d'Arpizio, even brands that were suffering over the past few years "did not disappear. There is always room for a turnaround," which prompted a knowing chuckle from Santo Versace, vice president of Altagamma and of the family-owned company.

D'Arpizio said the research showed no connection between the companies' size and their growth and that, in 2005, medium-sized companies also began to improve. "There is a rebirth of this segment," she said. Smaller brands at Gucci Group, Compagnie Financière Richemont and LVMH Moët Hennessy Louis Vuitton showed an average 20 percent growth, contributing to the expansion of those groups. "Core brands are no longer the leaders, and consolidation is starting to pay off," said D'Arpizio.

Massimo Ferretti, chairman of Aeffe, which controls Alberta Ferretti and Moschino, among others, said Altagamma members should not make the mistake of outsourcing in order to gain market share. "We can't risk making a more mass product — this will be our future problem," he said. Vittorio Radice, who is busy overhauling the Italian La Rinascente department store, made a rare appearance at the roundtable, concurred and said, "creativity is risky," and that Italians should push the creativity envelope even more. "I see newer, younger companies pushing the boundaries more."

Ferretti also warned against the temptation to take control of the whole production and distribution chain. "By focusing on direct retailing, we risk losing contact with our customers," he said. D'Arpizio said the industry should be watching the competition from "accessible luxury" brands and that other factors that could stall future growth are social and political instability, the euro-dollar exchange rate, the surfacing of local competition in emerging countries and the difficulty of attracting a younger generation to luxury goods. "In Europe and the U.S., Baby Boomers are still the core luxury consumers, spending about $30,000 on this category per year," she said.

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