Byline: Miles Socha

PARIS — Americans may be lapping up high-end fashions, leather goods and accessories, but it’s the Japanese who comb the world in search of good prices on top brands, who remain the fundamental drivers of the current luxury boom.
That’s the view of Jacques-Franck Dossin, the executive director of international equity research at Goldman Sachs, which hosted a “global luxury goods” conference at Hotel Le Bristol here.
The two-day conference held last week featured speeches from an impressive lineup of top fashion executives, including Polo Ralph Lauren’s Roger Farah, GFT’s Roberto Jorio-Fili, Hugo Boss’s Massimo Suppancig and LVMH Moet Hennessy Louis Vuitton’s Myron Ullman and Yves Carcelle. Sessions were built around four key themes: mergers and acquisitions; the Internet channel; the trend to controlling manufacturing and distribution, and fashion/style positioning issues.
These sessions were closed to the media, but on Thursday, Dossin gave reporters a briefing on the sector, about which Goldman Sachs remains bullish in the face of warnings of a downturn and the downgrading of some key stocks.
Aided by an array of charts and graphs, Dossin highlighted the importance of the Japanese consumer base. As a country, Japan accounts for only 17 percent of luxury sales, compared to 27 percent for the U.S. But, the Japanese consumers account for some 46 percent of consumption, compared to 15 percent for North America.
Japanese consumers remain an overwhelming force not only because they travel a great deal, but also because shopping is the primary motive for going abroad, where they seek cheaper prices and gifts to bring back for friends and family, due to the strong tradition known as “omiyage.”
Changing sociological factors also underlie the active consumption of Japanese consumers. Dossin showed graphs documenting a steep increase in unmarried women, part-time female workers and single-person households, consumer profiles prized for greater luxury spending.
Dossin demonstrated the strong parallels among the strength of the yen, worldwide sales of Louis Vuitton products and the performance of LVMH stock.
He said prospects for continued Japanese consumption remain favorable in the short term. At present, travel by Japanese consumers is up by 8 percent and the value of their purchases abroad is up an average of 12 percent this year.
He acknowledged that investors who are capitalizing on the “momentum” of the luxury sector might abandon it based on doubts about its sustainability and fears of slowing consumer spending. Yet, he maintained that there is still “impressive growth” ahead, noting that the sector is still performing below the levels that preceded the Asian monetary crisis. Goldman Sachs forecasts that like-for-like sales in the second half of 2000 will grow 17 percent, slowing somewhat next year, but still at double-digit levels.
Turning to a more general discussion, Dossin acknowledged that the roughly $100 billion luxury sector is changing in fundamental ways, noting that the amount of capital employed in the business has grown roughly eight times since 1986, while after-tax operating margins have slipped to about 8 percent from 11.9 percent in 1986. The investments have been primarily in new product lines, company-owned retail networks and acquisitions.
Dossin warned of a risk of “overcrowding” as luxury players expand their brand universe into new areas and stretch the meaning of the word luxury. But he forecast no slowdown in mergers and acquisitions, despite a “scarcity of targets” on which the main luxury groups can spend their large cash piles.
“At the moment, it’s a financial game,” Dossin said. “But somewhere down the road, it should move back to the brand creation game, which will be a big challenge.”
Meanwhile, Dossin held out little hope that Internet sales would become an important distribution channel for luxury goods, warning that it could threaten the exclusive cachet of luxury brands and lead to parallel trading.
“There’s no evidence, yet the Internet is great for the sector,” he said. “Our rough guess is that five years from now, five to 10 percent of the industry’s sales will come from the Net.”
But, he acknowledged that the Internet is a strong tool to communicate the heritage of a brand, explain product attributes and build image.

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