Luxury may have been a buzzword for much of the Nineties, but in 2002, there was more fizzle than buzz in the sector.
Plunging profits, decelerating sales, stock downgrades, spiraling debts and cost-cutting efforts dominated headlines as the year progressed and big luxury groups and small players alike hunkered down to weather a worsening economic climate.
Industry titans were still putting on a brave face, expecting luxury’s strong and long run to resume once it gets through this period of weak spending and global tension. But for the foreseeable future, single-digit increases and organic growth seem to be the reality for even the strongest of the luxury field.
In November, Morgan Stanley cut its earnings estimates on six European luxury goods stocks as it forecasted a weak Christmas season and expressed fear about the consequences of a war in Iraq. The bank slashed earnings and sales targets for Bulgari, Gucci, Hermès, LVMH Moët Hennessy Louis Vuitton, Richemont and Swatch, saying 2003 sales growth for the six firms should come between 2 percent, for Bulgari, and 5 percent, for Swatch.
"Indications on the Christmas season do not look good. Data from high-end Japanese department stores show that October sales disappointed," wrote analysts Claire Kent and Mandy Deex. "The U.S. is hardly showing the expected rebound."
Another sign of luxury slowing is the dearth of mergers and acquisitions. According to Michael Zaoui, managing director and head of mergers and acquisitions for Morgan Stanley, the total value of such transactions in Europe was about $800 million in 2002, a far cry from the $10 billion in deals in 1999.
Zaoui said unlimited growth once seemed possible for the luxury sector, with average expansion running at about 20 percent for the last decade. "We have now woken up," he said, estimating that the luxury sector has shed some $60 billion in equity in the last two years alone.
Speaking at an International Herald Tribune conference last week, Zaoui outlined dismal short-term prospects for luxury’s biggest players, as their fixed costs have spiraled with new store construction and heavy advertising investments. He noted that the 10 biggest luxury brands opened about 1,400 new stores since 1999 at a cost of about $4.5 billion, while advertising expenditures have risen to 8 percent of sales, as opposed to about 6 percent in 1995.Given a "significant" slowdown in sales since 2000, and "basically no growth" anticipated for 2002 — profits also dissolved across the board — margins are being compromised. To wit: Average earnings per share are down, and so is the return on capital investments. Company valuations have come down, too, with price-earnings multiples sitting at 23 today, versus 40 in 2000.
Smaller upscale designer businesses are also hurting. In May, Eric Bergere shuttered his Paris-based fashion house. "I don’t know how an independent can make it today," said the designer, citing tough going in Japan and elsewhere.
Other prominent designers who closed or suspended their houses this year include Daryl Kerrigan, Olivier Theyskens and Josephus Thimister. Some have resurfaced: Theyskens signed as creative director at Paris house Rochas and Kerrigan bought back her name.
The plunge in global tourism — travelers are estimated to buy 40 percent of luxury goods — and less robust spending won’t make the rebound easier. European retailers have cited mild improvements in tourist traffic, but nothing like pre-Sept. 11 levels. The situation has forced innovative moves to drive local customers into their stores, like creating limited-edition items, and opening units in tertiary markets.
All the signs aren’t negative, though. Many retailers and analysts still believe there’s growth ahead for luxury firms.
"I definitely do not think luxury is dead," said Judy Collinson, Barneys New York vice president. "It isn’t even ailing. Yes, The dot-com bubble burst, spending is more controlled and growth will be at more normal rates than it was in 2000, but the luxury business is strong."
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty