Study Says Luxury Market to Decline in 2009

Altagamma says luxury boom is over.

MILAN — Visibility may be poor, but one thing is almost certain: the $230 billion fashion and luxury goods industry is set to shrink this year, according to Altagamma.

This story first appeared in the March 31, 2009 issue of WWD.  Subscribe Today.

The association, which represents luxury firms in Italy, said Monday that it expects sector earnings before interest, taxes, depreciation and amortization to fall 21 percent in 2009 due to a “significant” drop in demand, particularly in the first half of the year.

“The luxury bubble has burst,” said Armando Branchini, Altagamma general secretary and deputy chairman of Milan-based consultancy Intercorporate.

By region, Altagamma forecast full-year sales will contract 14.8 percent in the Americas, 11.7 percent in Japan, 8.8 percent in Europe, 2.3 percent in Asia and 2.1 percent in the rest of the world.

By category, the association predicted sales of tableware will decrease 15.4 percent; jewelry and watches, 12.3 percent; apparel, 8.7 percent; shoes and leather accessories, 6.2 percent, and perfume and cosmetics, 4.8 percent.

“The market that used to exist doesn’t anymore,” said Francesco Minoli, chief executive officer of Italian jeweler Pomellato.

Paola Durante, Merrill Lynch investment banking director and head of corporate broking in Italy, said a recovery would likely come sometime in 2010.

“Perhaps we won’t see a return to the levels of 2006 or 2007, but [the situation] will resolve itself,” Durante said, citing a need for luxury companies to focus on creativity.

However, Deutsche Bank analyst Francesca Di Pasquantonio cautioned the environment would likely deteriorate further before improving.

“From a financial market point of view, things may have bottomed out, but in economic terms, there are further falls to come,” Di Pasquantonio said.

Bain & Co. partner Claudia D’Arpizio, who heads up the consultancy’s international fashion and luxury goods practice, said consumers were buying less and-or at lower price points, citing the positive performance of secondary lines. She also specified the crisis was accelerating existing trends rather than creating new ones.

Valentino chief executive officer Stefano Sassi said the downturn was leading consumers to take a “punitive” or “moral” approach to buying, meaning that price had to be relative to quality more than ever.

Experts added the crisis was necessitating firms to be more efficient, which should put them in a stronger position when the industry recovers.

“I am confident that we will come out of this more strongly,” Altagamma president Leonardo Ferragamo said.