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PARIS — United States of luxury? You bet.

Citing a relatively strong economy, pent-up demand and a broadening clientele for upscale fashions and accessories, European luxury firms are soaring in America — and banking on continued expansion for years to come.

“Our U.S. operation is booming,” said Patrick Thomas, co-chief executive of Hermès International, which saw its sales in America advance 26 percent in the first half. “We think it’s due to the general economic environment. We think we have significant growth potential in the U.S. in the five years to come. We are slightly under our optimum.”

While there are concerns in the U.S. over the impact of rising interest rates and increased gasoline prices on overall retail sales, the luxury side seems relatively immune to such shocks. Indeed, substantial long-term growth potential in the U.S. underscores the positive view of the luxury sector at some investment firms.

“European luxury brands are still under-represented [in the U.S.] and new client bases are emerging, while the threat of rising interest rates should not be overstated,” Antoine Belge, analyst at HSBC in Paris, wrote in a recent overview of the sector.

A spot check of major European firms lends credence to the bullish outlook.

Consider Chanel. Sales of handbags and accessories in the U.S. from January to July ran anywhere from 40 to 68 percent ahead of last year, while ready-to-wear was up 35 percent on average, and as much as 90 percent in some doors.

“We’re predicting a very strong year in 2004, as was 2003,” said Barbara Cirkva, executive vice president of fashion, watches and fine jewelry for Chanel Inc. “People are responding to beautiful, high-quality products.”

At Christian Dior, sales in the U.S. are advancing 43 percent in dollars year-to-date, said president Sidney Toledano.

Even if that rate of growth is lower than in Asia, Toledano said it suggests Dior could double the size of its American business in the next three to four years. In the first half, roughly one-fifth of Dior sales originated in the U.S.

“The taste for luxury has been developing very fast in the U.S.,” he said in an interview.

This story first appeared in the September 28, 2004 issue of WWD. Subscribe Today.

Louis Vuitton also has seen U.S. sales boom, posting record sales growth in the last quarter of 2003 — in excess of 50 percent. Parent LVMH Moët Hennessy Louis Vuitton recently described the performance of Vuitton in the first half in more general terms: double-digit. Some analysts estimate the gains at 20 percent in the period.

Still, at its recent press conference in Paris to discuss first-half earnings, Vuitton president Yves Carcelle said the brand’s new Manhattan flagship on Fifth Avenue at 57th Street, its largest store in the world, has helped accelerate growth in the American marketplace.

For LVMH as a whole, the U.S. market generated 24 percent of its net sales of fashion and leather goods last year. It ranks second after Japan, which accounted for 32 percent of sales in the period.

A buoyant economy, good consumer sentiments and general “democratization” of luxury underscore the impressive gains, luxury executives say. Their optimism is backed up by the results so far this year of such American stores as Neiman Marcus, Saks Fifth Avenue and Nordstrom, as well as luxury specialists such as Polo Ralph Lauren, Coach and Movado. According to the Italian luxury goods association Altagamma, the luxury goods business in the U.S. thrived in the first five months of the year with a 27.7 percent increase in sales. Based on a sample of 1,040 points of sale in the U.S., sales grew to $1.4 billion from January to May, with accessories sales increasing 38 percent; apparel, 27 percent, and jewelry, 23 percent.

At Altagamma’s meeting in Rome in July, Karen Katz, president and ceo of Neiman Marcus Stores, revealed that Neiman’s is now selling more jewelry pieces costing more than $100,000 and fewer pieces retailing for less than $50,000. Meanwhile, her colleague, Jim Gold, president and ceo of Bergdorf Goodman, predicted luxury won’t slow down for the next 12 months. He pointed out that the top 1 percent of the American population controls 35 percent of the country’s net wealth and that the “wealthy are becoming incredibly wealthier.”

But, while the wealthy may be propelling luxury’s momentum, it is the influx of new customers that is truly fueling the growth.

“It’s no longer the provenance of the happy few,” said Chanel’s Cirkva. “Everyone feels entitled to a little piece of luxury.”

That Chanel’s fastest-growing categories are costume jewelry, handbags, jackets and sports apparel — all of which have relatively low entry prices — suggests that more young people and new clients are buying into luxury.

“About 70 percent of our client base in a 12-month period of time is new,” Cirkva said.

Also, U.S. sales are advancing thanks largely to local demand. “We opened a store in Orlando, Fla., about a year and a half ago and we expected a lot of tourists,” Cirkva said. “But almost 50 percent of its clients are local customers.”

Growing local demand is being seen across the board in the U.S.

Toledano agreed demographics are on the side of luxury, with strong population growth predicted in the U.S. and new wealth emerging among recent immigrant waves, such as Hispanics, for example. Also, “I see less concern in young people, generally, about the future. They’re more positive than in Europe,” he said.

According to NPD Fashionworld, Hispanic consumers spent $8.2 billion on clothing in the 12 months to July, a 10 percent increase on the previous 12 months, registering the biggest percentage increase in this category of a handful of racial and ethnic groups. As noted, Hispanics generally spend disproportionately on fashion and luxury goods compared with their income levels.

Thomas at Hermès said American customers are becoming more educated about luxury brands and tend to “reward companies that offer consistent quality.” He also noted that new products, such as ready-to-wear designed by Jean Paul Gaultier, are likely to help raise awareness of the Hermès brand and drive traffic in the U.S. in coming years.

Not that all European players are planning major rollouts.

Thomas said Hermès would take a measured approach to expansion in the U.S., expanding its most productive locations — as it did recently in San Francisco and Dallas — and growing sales organically. At present, the U.S. represents about 17 percent of total Hermès sales.

Chanel, too, said it would emphasize productivity gains in its current U.S. network, which includes 23 freestanding fashion stores, eight freestanding fine jewelry units and about 100 wholesale doors.

Meanwhile, Toledano said Dior’s U.S. expansion would include a mix of new boutiques, expansion of existing boutiques and “we also see opportunities in malls.” About six openings are planned for 2005.

“The brand awareness is now strong, so we think we can go more national,” he said. “We have seen the demand, the economy and activity are really good in spite of the weak dollar — and demand has been strong for high-end products.”

At present, Dior operates 20 freestanding boutiques and 22 leased departments, many of them with Neiman Marcus and Saks Fifth Avenue.

Despite the bullish outlook, however, some observers cautioned that continued smooth sailing is not assured. The weak dollar, for one, is a major concern. Prices of luxury goods in the U.S. have risen as much as 30 percent in recent years, reflecting the strength of the euro.

“It’s a massive change,” Thomas at Hermès stressed. “We have to be very careful. Prices are very high for the moment.”

Most firms cited no price resistance to date, but acknowledged margins are sometimes compromised.

They also acknowledge they will come up against difficult comps going forward, as luxury rebounded sharply in the second half of 2003 from the negative impact of the Iraq invasion and SARS outbreak.

One London-based luxury analyst suggests that the big increases in U.S. sales this year reflect in part a massive rebound in Japanese tourism. That means high growth rates will be difficult to sustain. “There will still be decent growth at the high end,” the analyst said. “There’s a bipolarization of demand toward cheap-High Street brands or retailers of luxury.”

Cirkva acknowledged that the outcome of the U.S. elections in November, the situation in Iraq and the specter of future terrorist attacks all could impact the business in unforeseen ways next year.

On the analyst side, detractors include Merrill Lynch in Paris, which warns of a “significant slowdown in 2005 in the U.S.” and Morgan Stanley in London, which expects “underperformance in general for cyclicals such as luxury goods.”