Luxury fibres and fabrics: High-end markets underpin profits
Despite the financial storm clouds that have disrupted Europe's economy over the past few years, the continent's luxury apparel sector has proved remarkably resilient, with global demand for their products rising.
Initial predictions that general economic hardship could cause consumers to shun luxury brands have not been realised. Indeed, luxury European brands have enjoyed bumper sales figures over the last few years, albeit buoyed by sales outside Europe, where their brands offer a luxury cache to consumers.
A report updated in May by Italian luxury brand consortium Altagamma predicted that sales in the global luxury apparel sector will grow approximately 6.5% in 2012, following the trend of recent years that have seen constant year-on-year growth.
And while strong luxury apparel markets in Italy and Japan have not grown that vigorously in recent years, other emerging markets in Asia (particularly China) and Latin America have been producing consistently positive results.
And really expensive apparel seems to be the most recession-proof of all: it is the "absolute" luxury highest-end segment that has seen the biggest growth, , according to the report.
Collectively, European businesses account for 70% of the global luxury goods sector (of all kinds), yet more than 60% of sales are outside Europe, according to a report by Frontier Economics prepared for the European Cultural and Creative Industries Alliance (ECCIA), released in June this year.
Markets outside Europe are likely to provide the best growth areas for these brands as the local situation worsens. The conglomerate model of PPR, parent company of Gucci, Bottega Veneta, Yves Saint Laurent, Alexander McQueen and Balenciaga among others, is an example of this trend, posting a total 11.2% growth in revenue in 2011, with a whopping 29.1% growth of its luxury division sales in emerging markets.
US market growth
American purchases also continue to be important to this market. Despite the US's sluggish economic recovery, the American luxury fashion sector has experienced steady growth in the past year thanks to online shopping and innovative designs.
According to a US spending report released by the US credit card company American Express, in 2011, American men spent 156% more on premium luxury fashion then they did in 2010. Similar growth was witnessed for women, who spent 125% more in 2011 compared to the same period a year before.
Market researchers for the Amex Business Insights report attributed some of this growth to online shopping. "Both US fashion enthusiasts and average consumers alike are embracing the many opportunities for online shopping, increasing spend across all online fashion categories in the first half of 2011 compared to the same period in 2010."
Part of the luxury fashion industry's continued growth is the US consumer's open-mindedness in adapting to new experimental styles.
Spending curbs in China
And while analysts have praised China's surging luxury market - it might be wise to remember that this is a country with a new wealthy class. Economic troubles there could well trim this discretionary spending.
The rate of increase in Chinese spending on luxury goods has slowed as the country's economy slows from the breakneck expansion of the noughties, affecting brands like Burberry, Armani and Dior.
For example, Burberry saw sales in China in the first quarter of 2012 increase 20%, compared with 30% a year ago. This reflects China's GDP growth, which dropped to 8.1% in the same period, the lowest since 2009, while the consumer price index rose 3.8% year-on-year.
In Shanghai's high-end department store Jiuguang, rare 30%-off clothing sales in June this year included high-profile brands such as Just Cavalli and Dolce & Gabbana. Lacoste also had a 30% off sales campaign in its brand new store in Shanghai during the first week of July.
Zhou Ting, a professor at the University of International Business and Economics in Beijing said Chinese consumers' fever over high-end brands is fading. "Consumers don't have so much disposable money as they used to," she said, adding luxury brands are also getting more cautious on advertising spending. "They have sensed the uncertainty in the market," she said.
It also explains why the British high-end department store Harvey Nichols denied rumours it planned to open stores in China. In June, a Harvey Nichols spokesman in Hong Kong said it is not the right time to enter China because "the middle class in China is not wealthy enough."
India's future looks bright
But in the long term, surely the large emerging markets are the future of luxury - given their huge number of consumers.
Shuchi Singh, branding head for DKNY, which recently entered India with a DLF Fashions franchise, stressed that not only been no recession in India, but high end brands have been experiencing organic growth.
India has a huge young population, with an expanding middle class with higher purchasing power. "This heady concoction of well-informed, well-travelled young population willing to go the extra mile is what the designer brands need to nurture," Singh told just-style.
That said, Indian women consumers are more likely to spend money on designer accessories such as handbags and shoes than on designer outfits, given the continued strength of traditional clothing in India. Singh agreed that in India "utility dictates longevity".
To understand this kind of unique Indian market, Roberto Cavalli opened its second store in Phoenix Palladium, Mumbai's mall dedicated to luxury goods, earlier this year, partnered with local company Infinite Luxury Brands Pvt Ltd, and appointed leading Indian designer Manav Gangwani as marketing and sales director.
Singh added: "The future is bright. In addition to its blue blood patrons and high net-worth individuals, luxury wear has an appreciating upper middle class that aspires to upper echelons. The need of the hour is to harness that segment."
With additional reporting by Mini Pant Zachariah, Wang Fangqing, and Leah Germain.
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