Luxury Retail is Booming

Despite the recession, high-end brands have been reporting remarkable results and the sector is growing thanks to tourist spend and restored retailer confidence, says Laura McCreddie.

Despite the worst recession for years and continued consumer uncertainty after Chancellor George Osborne announced his plans to cut the deficit, the luxury sector is doing well. According to the global business and strategy consulting firm Bain & Company the sales of luxury goods may climb to its highest level since 2007.

It predicted a 10% rise in sales in this sector to e168bn (£148bn) this year and that this would continue into 2011.

The company results that have been released back this up. In October luxury goods group LVMH achieved revenue of €14.2bn (£12.5bn) for the first nine months of 2010, which was an organic growth revenue of 14%. The watch and jewellery sector, which includes such brands as Tag Heuer, Fred and De Beers, recorded revenue growth of 29%.

They weren’t the only ones. Gucci, Yves Saint Laurent and Burberry have all reported positive results.

On a global scale the emerging Asian markets, particularly China, are being credited with this surge. At the moment China is the fastest-growing luxury market. However, this is something also being experienced in the UK.

While London’s Evening Standard credited the return of the City bonus for the rise in luxury spend, some analysts believe it is also down to a shift in the way consumers are buying, choosing higher-end classic purchases as opposed to the trend for buying cheaper, more transitory items, which has dominated in recent years.

“What we’ve seen as a general trend is everyone has cut back but not necessarily on expensive things,” says Verdict senior retail analyst Sarah Peters. “Consumers are buying one amazing product rather than something cheaper. They are also looking for things that are classic in style but that will last longer.”

This is not just occurring among the wealthy. “The mid-level consumer is also trading up,” says Peters. “After George Osborne’s announcement there is a pressure on spending. People want real value when they buy something and the premium sector could definitely benefit from that.”

The tourist market in London has also had a major influence on the luxury market. France’s burka ban has seen wealthy Arabs boycotting Paris in favour of London over the summer and there has also been an influx of Chinese tourists who are making a beeline for high-end brands.

Giles English, co-founder of watch brand Bremont, says: “There is no doubt from what I have seen that the key London retailers have been profiting off the back of the tourist market and seeing increasing numbers of Chinese consumers visiting the UK.”

English feels that this phenomenon is not just London-centric and advises retailers across the UK to look into appealing to the luxury buyer. “We are seeing more of our growth outside London,” he says. “I believe jewellery is being more affected by the gold price, which is reducing sales, and that watches are becoming a greater percentage of jewellers turnover – unless they are gold watches.”

However, John Ayton, chairman at British luxury retail group Walpole and watch brand Bremont and co-founder of high-end jewellery brand Annoushka, believes that this reported surge is as much a result of a returning of retailers’ confidence as it is of consumer spending habits.

“Last year retailers were terrified and weren’t placing orders due to the recession,” he says. “Now they’ve started ordering again and what we’re actually seeing is returned confidence among retailers, whereas consumers are still very price conscious.”

Whether this renewed confidence is coming from the consumers or the retailers, the luxury market looks set to grow over the next few years, something that can only be good for the watch and jewellery industry as a whole.

Luxury Retail