THE BIG CHILL– NOT
THE SWINGS IN THE STOCK MARKET MAKE FOR DRAMATIC HEADLINES, BUT IN REALITY, MOST LUXURY FIRMS DON’T FEEL THREATENED BY SHORT-TERM LOSSES.
NEW YORK — Plummeting one day, soaring the next.
Even though the gains and losses are mostly on paper, the wild gyrations of Wall Street — at least in theory — could put a crimp in consumer confidence and darken the doorsteps at some of the leading purveyors of luxury products.
While the Nasdaq started last week at 4,572.83 and lost a staggering 9.27 percent in the first two days of last week, by the end of the week, much of the loss had been erased. Nasdaq closed Friday at 4,446.45.
Still, with billions in portfolio value vanishing in a few hours, largely from the holdings of “New Economy” technology and Internet companies, some of the investors who’ve made these recent fortunes might not feel so wealthy anymore.
They might be thinking twice before putting in that $200,000 natural stone pool, or ponying up for a 25-carat bauble. And, one could argue, luxury makers and retailers might be concerned about making their sales plans.
Most luxury firms, while not wanting to appear cavalier, are taking the ups and downs — dramatic though they might be — in stride. Executives say most steady luxury customers’ wealth goes deeper than a few days of market correction.
Another factor is that despite these volatile fluctuations and nervousness over rising interest rates and oil prices, they say consumers have become accustomed to them, and figure the market will come back again tomorrow. Or next week, or next month.
Luxury firms also aren’t panicking about the American market because Asian business has begun to pick up. So, whether dollars or yen, cash is still expected to flow to their coffers.
Other market watchers say much of the swinging is due to jittery day-trading or institutions shifting chunks of money, and not necessarily a prediction of a depression. Here’s a roundup of what some luxury executives and observers are thinking about the market’s potential to affect their businesses.
Mark Aaron, vice president, investor relations, Tiffany & Co.: “Wild fluctuations in the market are becoming pretty commonplace. But we’re not seeing wild fluctuations in our business. In the U.S. where it’s been especially volatile, our business has been unaffected. Our sales are heavily occasion related, and those occasions keep on occurring. Our sales results [of late] just haven’t indicated that type of volatility.
“We’ve been around for 163 years and have been through many cycles. I’m not saying there is never any concern.
“If declines in the market lead to an economic downturn, we’re not immune to being affected. We follow what’s going on, but there is little we can do about it. Instead, we focus on exceptional product development and solid marketing and communications.”
Pierre Gode, Bernard Arnault’s top strategic and legal adviser, concerning whether market turbulence would upset timing of stock market flotation for Europ@web, Arnault family holding’s $500 million internet fund, which is planned for June or July: “We are watching the market closely, of course, but it is still much to early to know what the summer will bring. In an IPO you can cancel at the very last minute if market conditions deteriorate.”
Jeffry Aronsson, chief executive officer of Oscar de la Renta: “We have a rarified customer base with extraordinary depth. And her depth comes from a real understanding of what Mr. de la Renta offers in his collection, from her thoughtful acquisitions and from her ability to afford them. I believe that the luxury buyers whose spending might be chilled by the market are most likely the poster children for the new economy, which are easy targets for hype. As hype is totally anathema to what we are, I doubt that many of the newly minted millionaires represent any significant portion of our customer base.”
Michael Groveman, president and chief executive officer of Bill Blass: “The customers we cater to are the richest people in the world. They’re rich whether the market is up or down.
“As far as the market is concerned, this week is a very unusual week. But for that to have any impact on our business, that sort of thing doesn’t happen that quickly. Of course, market increases have helped our sales because, psychologically, people [feel they can spend] more, but it is really not a significant impact.”
Sidney Toledano, president of Christian Dior Couture: “We haven’t noticed anything. Now I don’t have a crystal ball to look into the future, but for us, the stock market volatility had no impact [last week] on our sales.”
He added that various trunk shows in New York for Christian Dior and Dior-owned John Galliano last week went well.
“Plus, those who buy Dior have already cashed in,” he joked. “No, seriously, there is an overall return of consumer confidence that is not linked to the Internet. Growth is general and there is more optimism. Last week, we observed nothing different and everything sold well.”
Jacques-Franck Dossin, European branded consumer goods analyst for Goldman Sachs: “Certainly luxury goods purchases are influenced by wealth creation, and stock markets are an important component within that picture. Should we see a big drop in technology stocks, it would certainly have an impact on the luxury goods demand.
“Yet, we believe more important drivers are at work and will trigger a stronger demand of luxury goods by Japanese consumers. We believe Japanese consumers represent close to 50 percent of luxury goods sales worldwide [including travel retail.] The real drivers there are the strength of the yen, the pickup in leisure and travel and more generally the improving feel-good factor in Japan.”
Allen I. Questrom, chairman and chief executive officer of Barneys New York: “The more dramatic the news is, the more of an effect it will have.”
Questrom said that the runaway growth of the stock market has left investors and advisers alike gasping for breath, so a respite might not be such a bad thing.
“Nasdaq has had an enormous appreciation in a short time. Over the long term, if the market corrects itself, it will be good for everyone.
“Even people who have been in on the momentum agree that it has lost all sense of reality.” And unlike the 1987 crash, the most recent market swings have been relatively minor, with the total market still up for the year.”
At the same time, he added: “The economy is still very good, and a lot of people are working and making a lot more money than they were a few years ago. The Internet businesses don’t make money; it’s hype beyond hype. But overall, the market is very strong, even if some of the pieces people are betting on don’t make any money.”
How long the fluctuations last and how they’re treated in the media will feed any customer nervousness, Questrom said.
Chet Hazzard, president and chief operating officer of Vera Wang: “[Last week’s volatility is not a clear indication of trouble to come.] It’s too early to tell. The erratic nature of it all is concerning because if it continues, then the consumer begins to take notice. For the moment, I don’t think it is affecting people’s attitudes about spending, but savvy business people are watching it and wondering.”
John Orchulli, co-chairman and chief executive officer of Michael Kors: “Time has proven that our customer is very loyal. In a difficult marketplace, luxury, and most importantly, quality, will always sustain — these are the hallmarks of our collection. Even in difficult economic times, we are projecting substantial growth for both of our collections.”
Linda Beauchamp, president of fashion firm Susan Dell Inc.: “This was an immediate reaction to the Microsoft ruling and, as they say in life, this too shall pass. Technology is still the future.”
What’s more, she asserted that luxury consumers, who have amassed their wealth over the past decade, still have lots of money to spend and are unlikely to trade down from their current lifestyles.
Lisa Trafficante, president of Tyler Trafficante Inc.: Trafficante stressed that Richard Tyler’s bridal and eveningwear businesses especially are geared to special occasions in life where spending is “not an object.”
“At this point, we don’t think it’s severely going to affect our luxury goods business. We have a good deal of clients who are more affected by the positive news in the Dow.”
Philippe Houze, co-president in charge of store operations for Galeries Lafayette: “The store client and the investor are different people. This first storm has passed but in daily terms, we see the consumer as being quite confident. This confidence has not weakened and economic indicators remain quite positive.”
Armando Branchini, vice president of InterCorporate, a luxury goods consultant in Milan: “The crisis in the stock market [last week] was very limited, selective and hit only one specific part of the market. The crisis hit the ‘new economy,’ and reevaluated the ‘old economy.’ The impact was slower and inferior to 1987, 1991 or 1997, for example, which set back sales in the luxury goods sector. Even back then, however, the impact was not immediate.
“In this particular case, I don’t think the instability affected retail sales. It’s hard to tell what could happen if the crisis did last longer, though I believe the breadth of the area that is hit is more relevant than the number of days the crisis lasts.”
Carlo Pambianco, a luxury goods consultant in Milan: “After only two or three days of instability in the stock markets, I don’t think retail sales can be affected at all. I also don’t think it’s possible to really evaluate the situation after such a short period. Perhaps it’s only a storm in a tea cup…If, however, the instability were to last longer, perhaps a month, the effects would trickle down to retail sales.”
Linda Dresner, owner of two namesake designer boutiques in New York and Birmingham, Mich.: “I’m not nervous. These things are cyclical. People have made a lot of money and I think they are still feeling confident. I haven’t heard any rumblings yet. People are still going to be interested in luxury.”
Claudia Thomas, chief executive officer and president of Carolina Herrera: “I don’t see any reaction. Our business is so strong. Part of the reason business is so strong is that there is a different customer base. We’ve got a much younger customer and a lot of it is technology money, and they are more secure in their investments.
“They’ve acquired sudden wealth and I don’t think they are as worried about losing it. We’re talking about such huge sums of money. The numbers are just so extraordinary. There’s an entrepreneurial spirit with the new money. They are truly breaking new ground, so they don’t have the normal attitudes of investors of the past.
“We’re so used to such knee-jerk reactions to the stock market that the newer money reacts without the same sense of alarm. “People are mostly making a lot of money off of this. The financial sector is doing very well, thank you very much.”