Blog: Leonie BarrieLuxury in line for growth?

Leonie Barrie | 26 October 2009

Following hot on the heels of a new report released last week that says the luxury sector should return to growth next year, the latest results from French luxury fashion groups LVMH and PPR last week suggest any signs of a turnaround are still some way off.

PPR, which owns the Gucci brand, blamed a “lacklustre macroeconomic environment,” a drop in tourism and department store cut-backs for an 8% drop in third quarter sales. While fashion brands owned by LVMH continued to struggle as the company reported static revenues for the first nine months of 2009.

However, both firms concurred with the report’s findings that strong demand for luxury goods from shoppers in Asia and online make these areas the main focus for future growth. And significantly, they said results are improving as the year progresses.

Handbag and accessory maker Coach Inc, meanwhile, helped lift first quarter revenues through the introduction of new lower-priced lines, which have not only slowed the decline of US sales but also brought younger shoppers into its stores. Strong demand in China has also prompted the firm to open its first mainland store in the spring of next year.

Coach said its first quarter profit slipped 3.4% to $141m, while sales rose 1% to $761m. Direct-to-consumer sales, which include the firm's China business, soared 10%.

At the other end of the market, UK retail clothing giant Arcadia has posted a 13% increase in full-year pre-tax profit, thanks to a solid sales performance across its brands.

The company, which operates retail chains including Bhs, Topshop, Topman and Miss Selfridge, recorded a sales rise of 2.7% to GBP1.898bn (US$3.137bn) in the year to 29 August, while like-for-like sales were static. But owner Sir Philip Green voiced caution about the year to come, pointing to the potential impact of rising unemployment, the VAT increase and the impending General Election.

There are no such concerns for Hong Kong-based sourcing giant Li & Fung Limited, which is to buy US fashion firm Wear Me Apparel, which trades as Kids Headquarters, for US$100m. The move strengthens the firm’s growth platform, and will help it expand into new markets and categories including young men's and junior's.

And German sportswear company Puma AG is making moves to speed time to market and reduce costs with a landmark product development centre in Vietnam that brings together resources that had previously been spread across Asia. The centre in Ho Chi Minh City will be responsible for 85% of Puma's footwear and 15% of its apparel development needs, and will bring together prototype and sample suppliers.


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