PARIS — The luxury goods sector is heading for one of its worst years on record, with a predicted drop in expenditures of 6 percent to 211 billion euros, or $294.7 billion, according to a new report.
This story first appeared in the July 9, 2009 issue of WWD. Subscribe Today.
The study by London-based retail analysts Verdict said Japan and the U.S. are expected to bear the brunt of the 2009 slump, with sharp declines in sales of 14.6 percent and 12.1 percent, respectively.
A far different luxury retail sector will emerge once the global economy recovers. Customers, who are now favoring understatement rather than fashionability, are likely to demand fewer, but more exclusive, items of outstanding quality, the report said. And the Internet will be a major sales conduit for luxury goods, helping to widen their reach and bring costs down.
Although luxury brands have traditionally been slow to introduce e-commerce, the change will force retailers to innovate.
The Internet is particularly appropriate for products such as accessories, watches and jewelry, where fit is not as much of an issue and an online luxury retail platform could offer special personalized services such as individual designs and engravings, said Simon Chinn, who coauthored the report with Daniel Lucht.
Another issue luxury goods companies will have to address is the extreme volatility of currency movements, Verdict said.
Luxury is one of the few sectors in which products are manufactured in Europe and sold to the rest of the world. The appreciation of the euro compared with other currencies has meant that the pressure on retail prices has been increasing, according to Verdict.
“However, raising prices in a recession is very difficult to carry off, even for a luxury business, especially for those ranges targeted at the mass market and, in particular, in relatively new and poor markets in the Middle East and emerging Asia,” Lucht said.
Verdict’s forecast appears to be less pessimistic than the scenario offered by Boston-based Bain & Co. Inc., which has predicted a net decline of 10 percent in 2009 for the worldwide luxury market.