Wall Street Journal
By Elizabeth Homes
World-wide sales of luxury goods are surging this year, fueled by double-digit growth in China and a resurgence in the more mature markets of the U.S. and Europe, according to a new study from Bain & Co.
Luxury spending is expected to rise 8% to €185 billion ($274 billion) in 2011, according to the firm's closely watched Luxury Goods Worldwide Market Study, released Tuesday. The expected gains follow a record year in 2010, when the sales recovered from the recessionary plunge they took in 2008 and 2009.
Luxury goods had a strong holiday season and have started the year at a fast clip, as well-heeled consumers grow more confident about splurging. Luxury conglomerate LVMH Moët Hennessy Louis Vuitton reported a 17% increase in sales for the first quarter, with gains in all categories, including fashion, leather goods, watches and jewelry.
U.S. high-end department stores are doing well, too. Saks Inc. reported double-digit same-store sales increases in February and March. Analysts also are expecting a double-digit increase for April sales, which the company reports Thursday.
"You're seeing clearly a trend towards the higher-end items selling again and that's been consistent over the last several quarters, Saks Chief Executive Steve Sadove said at a conference last week. "We feel good about the start to the year."
Bain said orders for fall and winter 2011 are up, as retailers restock depleted inventories.
The firm projects sales in the Americas, which include the U.S., by far the largest luxury market in the world, will rise 8% this year. Sales in Japan, the second-largest luxury market, are expected to fall 5% as the country recovers from the earthquake and subsequent tsunami earlier this year.
China is home to the most explosive growth, with its luxury goods sales expected to rise by 25% this year on a constant-currency basis to €11.5 billion. As its second- and third-tier cities become new destination for luxury brands, mainland China will become the third-largest luxury market in the next five years, according to Bain.
"China is the rising star," said Claudia D'Arpizio, a Milan-based partner with Bain and the author of the study.
The power of the Chinese consumer extends beyond its geographic borders. More than half of Chinese luxury spending happens overseas, fueling growth in more mature markets in Europe.
Bain predicts the worldwide growth trend will continue for the next few years, with sales rising between 5% and 6% each year to between 214 billion and 221 billion euros by 2014. Other potential growth markets for luxury brands are Russia, the Middle East and Brazil.
Strong sales of luxury goods so far this year, with reports of items selling out, are a continuation of the momentum from the 2010 holiday season, which brought retailers the highest traffic levels of the year.
World-wide luxury sales increased 12% last year to 172 billion euros, according to estimates from Bain. Some private retailers have yet to disclose results. Leather accessories, including handbags, helped drive the results, with sales rising 20% in 2010 over the prior-year period.
Luxury goods makers do face some hurdles. Brands will have to balance the need to maintain aging U.S. Baby Boomer consumers while tweaking established styles enough to attract new, young shoppers, Ms. D'Arpizio says.
Also, the natural disasters in Japan accelerated the decline in the country's luxury sales. Sales last year fell to €18 billion, a 10% drop on a constant-currency basis, due in part to an aging population. This year, Bain is forecasting a further 5% drop on a constant-currency basis, to €17 billion, as the country continues its recovery.
