A Murky Outlook For Luxury Goods

Sales of luxury goods appear to be snapping back after an awful final quarter of 2001, but analysts and consultants who follow the sector warn that several factors cloud the outlook for growth in the coming months and years.
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Short-term worries include the recession in Japan and the coincident devaluation of the yen. Further out, concerns exist about the effectiveness of various distribution channels and the risk of brand saturation in the marketplace.
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The recession last year was difficult for many industries, yet sellers of luxury goods held up fairly well ¡X until September. The terrorism attacks and the immediate and severe depression of tourism and air travel proved to be one crisis too many.
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"The luxury goods sector tends to be quite recession proof because people who buy them have secure jobs or are wealthy anyway," Bryan Roberts, a senior retail analyst at the research firm Mintel International Group Ltd., explained. "But Sept. 11 had a massive impact on a number of big global brands. They are very reliant on tourism for their sales, at retail outlets in airports and at larger tourist destinations. A number of businesses were severely hit, with sales down one-fourth to one-third in the fourth quarter."
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The drop in sales was so extreme that the three largest global providers of branded goods ¡X LVMH Moet Hennessy Louis Vuitton SA, Richemont SA and Gucci Group ¡X have either reported or are forecast to report substantial declines in profits for the financial year that includes the fourth quarter.
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LVMH, the French company that is the industry leader by far, barely broke even last year, the company announced in early March, although most of the decline was the result of one-time writeoffs. Still, operating profit f ...
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