Luxury industry banks on China's growth(69777)

Europe growth at risk, luxury execs say

From: Reuters

The luxury industry's recent recovery is likely to be short-lived in Europe if governments' new austerity measures prompt consumers to rein in spending, luxury executives warned on Wednesday.

Bulgari Chief Executive Francesco Trapani told the Reuters Global Luxury Summit in Paris he expected higher taxes and budget belt-tightening to really start biting next year.

As a result, European shoppers, traditionally big consumers of luxury goods, were likely to become increasingly thrifty.

Europe is the biggest manufacturer of luxury goods in the world and makes up about a quarter of worldwide luxury sales, with a significant part coming from visitors.

The recent Greek debt crisis and fears of contagion have precipitated talks of spending cuts and pension reforms throughout Europe and raised fears of a double-dip recession.

German data earlier this week showed consumer sentiment was likely to fall in June, as the euro zone crisis weighed on households' view of the economy and income expectations.

Meanwhile, French consumer confidence fell to its lowest level in a year in May, as households worried about their future finances and living standards.

But until now, the somber mood has not affected the luxury industry.

Global luxury sales rose 15 percent in the first quarter, according to U.S. consultants Bain & Co and it expects growth to taper off during the year as the basis for comparison becomes less favorable.

Last year, the global luxury industry suffered its worst slump ever, with sales down 8 percent against 2008.

Upmarket watch maker Hublot said it was genuinely concerned about demand in Europe even though it had record sales in the first five months of the year.

"For the rest of the year, I don't know what will happen... I have concern about Europe and because of this concern I am now getting cautious," Hublot Chief Executive Jean-Claude Biver said, referring to the European budget crisis.

Biver said his target to produce record sales in 2010 might not be reached "if Europe failed to recover."

The watch industry has been emerging from its worst crisis in decades, but much of the recent sales rise has been driven less by consumer demand than by retailers rebuilding their stocks, severely depleted by last year's downturn.

Swiss watch exports rose 16.4 percent in the five months to April after a 22.3 percent drop in 2009.

Patek Philippe Chairman Thierry Stern said he could not tell if the strong start of the year was just a positive blip or a long-lasting trend.

"I am still not ready to say that the crisis is over," Stern told the Summit in Paris. "I am still watching carefully. You never know what will happen."

BACK TO PRE-CRISIS LEVELS

Bulgari's Trapani said he could not predict when the Italian jeweler's sales would return to their pre-crisis levels while La Prairie Chief Executive Dirk Trappmann estimated it could take two years for that to happen.

"Things should get better gradually in 2011. We should get back to pre-crisis growth rates by 2012," Trappmann said, referring to the 2005-2008 period when the luxury cosmetics market grew 7 percent-to-8 percent a year and La Prairie at twice that speed.

Cerruti Chief Executive Florent Perrichon and Oscar de la Renta Chief Executive Alex Bolen said they were worried about European demand and Perrichon predicted Europe's main luxury markets France and Italy could end 2010 with flattish growth.

But on a brighter note, Perrichon was one of several luxury executives who said the weak euro would boost margins and sales as the low single currency would attract foreign shoppers in the euro zone.

Analysts estimate about 20 percent of luxury goods purchases are made by travelers and a low euro should trigger fresh inflows of determined luxury shoppers from China, the U.S. Russia, the Middle East and India, into European capitals.

Luxury industry banks on China's growth

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