PARIS — The U.S. market still has untapped potential that European luxury goods companies could unlock in their quest for growth markets.

This story first appeared in the November 9, 2009 issue of WWD. Subscribe Today.

So says a research report published Thursday by investment house Bernstein, arguing the U.S., thanks to its sheer size and favorable demographics, provides an “attractive, if not straightforward” opportunity for European luxury companies in the short and medium term.

The U.S. luxury market is worth around 44 billion euros, or $65 billion at current exchange, and remains a large fixture on the global luxury landscape, although it presents challenges such as a dispersed resident population, reliance on wholesale distribution and consumers’ appetite for discounts.

“Those who can unlock this puzzle will reap the rewards of a market that might not be as mature as some may perceive,” wrote analyst Luca Solca. “The jury is still out on the shape of the consumer demand recovery in the U.S., but given easy comparatives and an improving GDP outlook, we would expect the market to gradually come back to growth during 2010.”

There is scope for European brands to gain a share of the U.S. market — which so far has been dominated by purveyors of “accessible” luxury such as Coach, Ralph Lauren, Calvin Klein and Tommy Hilfiger — by developing a larger online presence and lessening their reliance on distributors through concessions and own stores, Solca noted.

Local players have been capable of developing strong, large, well-penetrated businesses by focusing on entry and aspirational price points, forcing European brands into the higher price points.

The only notable exception has been Armani’s A|X line, cited in the report as the only Italian brand recognizing the need to compete at a lower price point in the U.S.

As a result, U.S. players have managed to derive 75 percent of their total sales from their home market, while European companies only derive between 15 and 20 percent of sales from the U.S.

“This is a very different picture to Europe, where the likes of Louis Vuitton, Gucci and cheaper lines of Italian designer brands have a strong grip of entry price-point lines, too, while American brands are largely absent or very small,” Solca added.

The report concluded that the size of the U.S. opportunity would depend on European brands’ ability to convert part of the sizable “accessible” consumer base to higher price-point categories.

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