Luxury: The “middleweights” are the most affected by the slowdown

The French newspaper “Le Monde” published, on December 22, a very interesting article on the topic of luxury. The observation is severe. The middleweights in the luxury domain must abandon their dreams of grandeur,' states the daily.

Taking a look at specific brands... Prada, indebted to the tune of 1.2 billion euros, renounces its listing on the stock exchange and is shedding the furrier Fendi. The Milan group HDP (fashion and media) is looking to sell the sports brand Fila and the label Valentino. The German Escada that registered a net loss of 25 million euros for fiscal 2000-2001 has already sold the perfume maker Grès and is seeking a buyer for the brands Laurel, Primera, Biba and Kemper.
Versace, Dolce&Gabbana ; Ralph Lauren and Calvin Klein (the brand and not the watch licence held by the Swatch Group) could pass into the hands of the majors in the sector within the next ten months. Among the luxury brands, all the profit forecasts are lower. On December 18, Gucci stated that third quarter results were down by 51%.

The LVMH could see its operating income fall 15% this year and it is, above all, in its distribution pole that profitability must be increased. The performance of Richemont is a bit better with a decline of 5% for this year.
The primary consequence of this situation is the halt in strategic actions by the middle range brands active in the luxury sector. They have been forced, at least for the time being, to renounce the `magic formula' used by the multi-brand groups. The opening of controlled sales points has been slowed. `What good does it do to open new stores, each costing between $5 and $15 million, if you do not generate enough traffic,' explains an analyst at Merrill Lynch.

We are witnessing the distinction being drawn between what some people call `true' luxury and `faux' luxury, between `star' brands and `fashion' brands born during the recent boom in luxury goods. `Are we moving towards a new concentration of brands?' asks the French newspaper. Will this concentration benefit the historic grand names such as Cartier; Louis Vuitton, Chanel and Hermès ; for example? Speaking of Hermès... It is the only `middleweight' to see its turnover actually increase 12.4% during the last nine months, and the only brand to celebrate its tenth consecutive year of double-digit growth.

Sales in 2000 (in millions of euros)

LVMH
Richemont
Groupe Gucci
Polo Ralph Lauren
Tiffany
Groupe Prada
Rolex
Hermès
Giorgio Armani
Max Mara
Christian Dior
Chanel
Swatch Group
Groupe Escada
Burberry
Ermenegildo Zegna
Coach
Bulgari
Mikimoto
David Yurman
Salvatore Ferragamo
Versace
Jean-Paul Gaultier
Dolce&Gabbana

11 581
3 695
2 507
1 727
1 821
1 865
1 727
1 159
1 033
981
866
755
755
725
693
666
664
662
572
555
503
477
470
377

Source: Merril Lynch



Source: Europa Star magazine
Feb/March 2002 issue