PARIS — Rather than face an industry downturn, luxury companies should see their earnings outpace many consumer and retail stocks, lifted by fast growth in emerging markets and improving exchange rates.
“We are sticking to our scenario of a gradual reversion to sustainable long-term organic growth of 7 to 8 percent for the industry” in the second half of 2008 and into 2009, HSBC said in a research report issued Monday.
“Optimistic does not mean blindly bullish,” Paris-based analysts Antoine Belge and Erwan Rambourg caution, also downgrading the stocks of Bulgari and Tod’s.
Still, they stressed that valuations in the sector “fail to reflect the fact that fast-growing client groups from Asia, Eastern Europe and the Middle East should alone add at least 6 percent to the sector’s top-line growth.”
HSBC estimates that these nationalities account for 30 percent of global sales, and should generate continued sales growth of about 20 percent annually in 2008 and 2009.
Resilience in the U.S. and Europe is seen linked to employment figures more than the housing market and gasoline prices.
“In contrast to previous slowdowns, we have so far observed that luxury goods appear not to be the first thing that U.S. and European consumers have stopped buying,” the report says, while noting that an expected rise in U.S. unemployment would have a negative impact on luxury consumption.
Meanwhile, HSBC contends the watch segment will be more vulnerable if “wealth effects” deteriorate and that larger groups will fare better than smaller companies.
HSBC has “overweight” ratings on Coach Inc., Christian Dior SA, PPR SA and Burberry Group plc.
Meanwhile, another report from New York’s Luxury Institute said luxury players should go on the offensive to combat the economic slowdown.
“There are a lot of brands around the world right now, which, instead of going on the offensive — that is, innovating new product, making news and delivering great service — are cutting back and trimming down as if the world was coming to an end,” said Milton Pedraza, chief executive officer of the institute, which on Monday released its 2009 Luxury Brand Status Index survey for women’s fashion in Europe.
The study, which ranked 20 of the most prestigious brands, according to feedback from 752 women ages 21 or older from the U.K., Germany, France and Italy with a minimum income of 60,000 euros, or $85,620, or 70,000 pounds, or $123,760 a year, was topped by classic European names Hermès, Chanel and Yves Saint Laurent, which ranked first, second and third, respectively. Hermès topped the poll in France and Italy, Yves Saint Laurent in Germany and Alexander McQueen in the U.K.
The survey also found that some labels, though ranking highly for the product itself, suffered due to the kind of service they offered. “One question we asked was, ‘Does it make you feel special?’ And that’s where a lot of brands don’t score highly,” said Pedraza. “Quality? Great. Unique and exclusive? Some brands are, but not all. The difference is how unique and exclusive a brand makes you feel across the full experience.”
In tougher times, especially, the level of service offered, both past and present, increases in importance. “It’s one of the things that was definitely neglected during the boon period and it’s coming back to haunt companies now,” Pedraza continued.
In Europe, in particular, where consumers, Pedraza believes, settle for “really lousy service,” he sees an opportunity for brands, which should look at high-end hotels for lessons on how to give hospitable experiences and services, thanks to highly trained staff.
“Everybody should be treated well, but some customers, by virtue of what they buy or what they could buy, should get special treatment,” he said. “Invest money now during the downturn on customer service and you’ll be far more resilient.”
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