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Driven by China sales, luxury goods buck economic slowdown

PARIS--Fuelled by surging demand in China, luxury goods makers are bucking the global economic slowdown and reaping huge profits on sales of high-end handbags, expensive jewelry and posh perfumes.

Results for the first-half of 2012 released this week showed major brands, including world leaders LVMH, PPR and Luxottica with rising profits driven by growing sales in emerging markets. The results beat analyst expectations and allayed fears that the cooling down of China's economy would dampen luxury sales. Company bosses even expressed confidence that year-end figures would show continued growth.

Paris-based LVMH, whose assets include jeweler Bulgari, fashion house Louis Vuitton and a string of top champagne and spirits brands, said Thursday its net profit was up 28 percent in the first half at 1.68 billion euros (US$2.06 billion).

Sales were up 26 percent, with 29 percent of revenues coming from Asia outside Japan, the group's largest market.

“We approach the second half of the year with confidence,” company CEO Bernard Arnault said, with LVMH noting the “global market (is) experiencing strong growth” despite “an uncertain economic environment in Europe.”

Another leading French luxury and retail group, PPR, said the same day its first-half net profit was up 5.9 percent to 477 million euros, following a 17 percent jump in sales.

PPR's sales of luxury goods, which include fashion brands like Gucci, Yves Saint Laurent and jeweler Boucheron, were up by nearly a third, compensating for a 9.2-percent drop in sportswear sales dragged down by its Puma brand.

“Business in greater China remained extremely buoyant, with sales climbing by an overall 21.5 percent, fuelled by a 24.4-percent surge in mainland China,” the company said of its luxury division.

Italy's Luxottica, the biggest eyewear maker in the world, said its first-half profits jumped 20.6 percent to 195.5 million euros. The company, which produces Oakley and Ray-Ban sunglasses as well as eyewear for Chanel and Prada, said sales rose by just one percent in Europe but were up 35 percent in emerging markets. The results echoed similar figures released earlier this month by French luxury goods group Hermes, which reported first-half sales up 21.9 percent to 1.59 billion euros, with Asian sales excluding Japan up 25 percent.

Analysts say China now accounts for about 40 percent of the global luxury goods market and that Chinese appetites are driving sales not only in the country but abroad, as Chinese tourists often rack up sales while on foreign trips.

Despite high taxes on luxury goods in mainland China, companies are also increasingly expanding into its retail market, with PPR alone opening 22 stores in China in the first half of the year.

Still, analysts are warning that some sort of slowdown in luxury goods sales is to be expected if China's red-hot economic growth continues to cool.

China's economy grew by a still-strong 7.6 percent in the second quarter, but the expansion was at its slowest pace in more than three years as global economic problems started to hit the world's second-largest economy.

Thomas Mesmin, an analyst at CA Chevreux, said it was inevitable that a global economic downturn would have an impact on luxury goods.

“Saying that luxury goods are resistant to the crisis sounds good, but it's wrong. There is a fairly strong correlation between the development of the global economy and the luxury market,” he said.

“We are accustomed to caviar, but we're probably going to have to eat a little more salmon,” he said.

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 Restrictions on foreign investors eased in China as part of reform 
This Nov. 23, 2011 file photo shows the French boutique Louis Vuitton in Chengdu, China. Paris-based LVMH, whose assets include jeweler Bulgari, fashion house Louis Vuitton and a string of top champagne and spirits brands, said Thursday, July 26 that its net profit was up 28 percent in the first half at 1.68 billion euros (US$2.06 billion).

(AFP)

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