Luxury brands positioned for giant US boom
China second to US in 2012 luxury retail growth
PARIS: Most men might balk at spending $600 on a pair of Dior sneakers but for US shoppers like Ephraim, an upbeat 30-year-old, such indulgences are becoming increasingly commonplace. Ephraim is the kind of man who gives luxury goods makers high hopes that the US market can fuel future growth, as China runs out of steam and demand in Europe sags. “There is a cultural shift,” Ephraim says while browsing at Saks Inc’s New York City flagship. “Men are becoming more fashion forward.” The growing appeal of luxury goods to men and increased confidence among affluent spenders as the US economy and asset prices recover have boosted sales and encouraged luxury brands to step up their investments in the United States.More foreign shoppers are also thronging stores as the US government eases visa restrictions to attract more tourists. Luxury spending in the United States collapsed after the 2008 financial crisis but roared back to pre-crisis levels by 2012. Last year, the world’s No.1 and No.3 luxury groups LVMH and PPR saw higher growth rates in the United States than in China for the first time in years.
Sales in the Americas are expected to grow 57 percent this year, compared to 6-8 percent in mainland China and 0-2 percent in Europe, according to consultancy Bain & Co. Evidence is already showing through. Ralph Lauren this week forecast US sales growth of 4-7 percent while high-end department store Saks reported quarterly sales up 5.9 percent, almost double what analysts had forecast. “(There is) renewed confidence, a genuine rebound in fashion and luxury consumption”, said Sidney Toledano, head of French fashion house Christian Dior, part of LVMH.
Growth spurt
Major brands like Prada, Hermes, Burberry, and Hugo Boss are opening shops or expanding existing ones in the United States, and are stepping up their advertising spend. In July, Alexander McQueen will open a 3,900-foot store on New York’s Madison Avenue. Next year, Burberry plans to launch a new flagship on Rodeo Drive in Beverly Hills. LVMH and PPR, soon to be renamed Kering, are also expanding in the United States while putting the brakes on China, which had been the major driver for luxury sales until last year. “I think the US holds a lot more potential than people believe while the focus has very much been on the BRIC (Brazil, Russia, India, China) countries,” said Robert Chavez, head of US operations at Hermes.
The French group, which opened its only shop dedicated to men on Madison Avenue in 2010, now makes about 15 percent of its sales in the United States, up from 10 percent five years ago. China, Hong Kong, Taiwan and Macao account for 20 percent. “We have noticed a rise in men’s purchases, particularly in the last two years,” said Chavez. Ties, shoes and $8,000 custom-made three-piece cashmere suits are all doing equally well. In the 212 billion euro luxury as a whole, the United States outguns China, even before the new growth spurt. Bain & Co values the US market at 59 billion euros, Europe at 74.2 billion and China-Hong Kong around 22 billion. 2.6 million to the United States. Travel agents say US visa approvals require more proof of employment history and finances than for France or Italy. The United States would earn $20 billion more from luxury sales if it had as many tourists from emerging markets as Europe, New Yorkbased brokerage International Strategy & Investment Group (ISI) estimates. The US State Department says it has cut the wait for a visarelated interview in Brazil, where most US luxury shopping tourists come from, to two days. Clerks at Saks said they had noticed an increase in Brazilian tourists.
Tourists are coming
PPR boss Francois-Henri Pinault reckons that rising numbers of tourists to the United States will enable it to narrow the gap with Europe, where visitors account for about half of luxury sales. That contrasts with 15-20 percent in the United States. “We will never have as many tourists as in Europe but I think that ratio could reach 30 percent over the next few years,” said Milton Predaza, chief executive of Luxury Institute, a US consultancy.
In 2010, 6 million tourists from Brazil, India and China flew to Western Europe compared to