2/20/2013 5:15 PM ET|
Americans regain craving for luxury
Since recession-weary Americans cut back on spending, China had been seen as the sector's best customer globally.
While all eyes have been focused on luxury-goods growth in China, another market has quietly been bolstering the business of high-end goods purveyors: the U.S.
French silk-scarf maker Hermès International (HESAF) said last week that fourth-quarter sales rose 21% in the Americas to $247.5 million. That comes on top of a slew of strong U.S. performances for its peers, such as LVMH Moët Hennessy Louis Vuitton (LVMUY) and Cartier owner Compagnie Financière Richemont (CFRUY). Gucci parent PPRSA(PPRUF) confirmed the pattern when it reported Friday that earnings in 2012 increased 19%, and sales grew by 21%.
Even after such robust growth, Hermès still has "an enormous growth potential" in the U.S., says Chief Executive Patrick Thomas. "It's still a market to be conquered."
The U.S. has been showing signs of strength. The economy has bounced back from recession, unemployment has declined, the stock market is tickling record highs and home-sale prices have improved. As a result, wealthy Americans are spending freely on expensive clothing, accessories, jewelry and beauty products.
"Dynamism in the luxury sector is very linked to economic growth," says Frédéric Rozé, the head of the U.S. for French cosmetics company L'Oréal SA (LRLCF). "The U.S. is a major source of growth for L'Oréal."
Even though consumer-confidence levels are wobbly, analysts say the biggest spenders are shrugging off any uncertainty. Demographic changes and tourism trends in the U.S. bode well.
"Trends in luxury consumption in the U.S. have continued to outperform overall consumer trends," says HSBC luxury-goods analyst Antoine Belge.
Since the 2008 economic crisis damped luxury-goods sales in the U.S., China has been seen as the sector's primary driver globally. Chinese consumers took on additional importance as the eurozone crisis bit into spending among local European consumers. Many luxury executives saw busloads of Asian tourists in Europe as coming to their rescue.
But last year, cooling Chinese growth led to fears that luxury goods' long, good run was ending. The double-digit sales increases became harder to attain for companies such as LVMH Moët Hennessy Louis Vuitton, which had operated in China for more than 20 years.
As a result, the U.S. has taken the lead in sales growth.
Most luxury-goods players planted their flags in the U.S. long before they ventured into China. Last month, luxury bellwether LVMH, the world's biggest luxury-goods company and parent of brands such as Louis Vuitton, Moët et Chandon champagne and the Sephora cosmetics chain, said the U.S. was its strongest region in 2012. Excluding currency effects and acquisitions, sales rose 12%, outstripping 10% growth in Asia excluding Japan.
Demographic trends play in favor of the luxury-goods industry. Hispanic-Americans and Asian-Americans are bigger consumers of luxury-goods fashion and cosmetics than the average American, executives say. At L'Oréal, for instance, Asian-Americans spend heavily on skin-care products. L'Oréal makes high-end perfumes and cosmetics under labels such as Lancôme and Giorgio Armani, but also has many mass-market brands.
Until now the U.S. market has mainly been a local consumer market. But that could change, adding to strong domestic demand. The government is relaxing visa requirements for Chinese visitors, hoping to attract the large number of tourists who head to Europe to snap up luxury goods.
"The stronger economy and loosening of visa restrictions for the Chinese mean that business this year will benefit from both affluent locals and tourism," said Milton Pedraza, CEO of the Luxury Institute, a U.S. consulting firm.
To welcome the expected boost in tourists, luxury houses are making sure their flagship stores are in tiptop shape. Burberry Group (BBRYF) recently renovated its main Chicago boutique. Hermès plans to refurbish and expand its Rodeo Drive store in Beverly Hills, Calif. Next year, the company is scheduled to move its current store in Miami -- a gateway for Latin American visitors -- to a larger location in the city's up-and-coming Design District.
"We didn't open any new stores or do any renovations in 2012 in the U.S., so (growth) was really done through the existing store network," said Axel Dumas, Hermès' chief operating officer. Dumas is set to become joint-CEO alongside Thomas later this year.
At Hermès, sales in the Americas last year rose 14% to $753 million, while sales in Asia excluding Japan increased 25% to $1.4 billion. The company doesn't break out U.S. figures. Total sales were $4.6 billion for the year.
Though executives are enthusiastic about the U.S. growth, they are also realistic about its limits. As recently as 2007, luxury brands were opening dozens of stores in smaller cities from Seattle to Nashville, Tenn. But analysts say luxury-goods sales haven't lived up to expectations in some of those places.
"Where some have gone too far is in thinking Middle America is going to be buying luxury," says HSBC's Belge.
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Craving for luxury? Maybe. The problem is that a very small minority of Americans have the lions share of expendable money under this debt monetary system.
These wealthy people however, have most everything they need in the luxury department, and need not spend much more. They end up hoarding their wealth instead of investing in those that are not gainfully employed. Ironically, investing in those less fortunate, creates more jobs, which in turn creates more wealth that gravitates right back to the wealthy investors. Instead, those potential investors complain about welfare, unemployment, etc., etc.. By not investing, they are endangering their own fortunes by feeding into the nation's potential for economic collapse.
This system monetizes debt. Without continued borrowing, the system begins an immediate collapse. All money is created through the extension of credit from private commercial banks, or other debt intstruments, such as treasury bill, notes or bonds, which congress puts on the public's credit card.
The interest on all of this borrowing, gravitates to the bankers and those wealthy enough to be invested in those financial debt instruments.
Those that crave that luxury, are unfortunately mortgaged to the hilt and the bankers have a lien on most everything of value that they own. The more their cravings go unfulfilled, the less profit taking for the wealthy few. It will not be too many years before just servicing the interest on total indebtedness will surpass total gross consumer income. Then all is lost!!!!!
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