After Tough Holiday, Market Faces Another Nervous Year

PARIS — If the Grinch stole Christmas for luxury, he’s going to keep doing so for the foreseeable future.Analysts share a grim view of...

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PARIS — If the Grinch stole Christmas for luxury, he’s going to keep doing so for the foreseeable future.

Analysts share a grim view of the crucial holiday selling period for luxury and forecast tough times for the sector, at least for the short-term.

Sales of luxury goods in Europe over the holiday season fell by at least 5 percent, as skittish consumers traded down to lower-ticket items and waited for sales, according to store checks done by investment firm Goldman Sachs in London. In a report issued last week, luxury analyst Jacques-Franck Dossin also noted that a pickup in Japanese travel did not translate into better luxury goods sales, and weak tourism flows from America hurt European business.

"Basically, it was not a very merry Christmas," said Antoine Colonna, luxury analyst at Merrill Lynch in Paris. "For the apparel and jewelry players, we have highlighted that the outlook for the next couple of months remains volatile."

Claire Kent, luxury analyst at Morgan Stanley, cited "mixed news" on the Christmas season with Tiffany reporting disappointing sales and Coach citing a "positive surprise."

"We continue to believe that most European luxury retailers will report either disappointing or in-line holiday sales, with only Burberry possibly beating consensus," she wrote in her weekly report on the luxury sector that came out Friday. "Revitalized brands with strong momentum [like Burberry and Coach] are the exception right now, not the norm."

Colonna noted that yen and dollar fluctuations against the euro could weigh on the sector in 2003, and he predicted no immediate improvements in consumer confidence or the "feel-good" factor that encourages spending.

"Rather than a sudden improvement, we…believe in a very progressive pickup of demand next year," he wrote. "We believe that visibility will remain poor at the beginning of 2003 and would expect the potential of a war in Iraq to weigh further on the sector."

Dossin said holiday trends bode poorly for the first half and he expects a high level of markdowns in the sales season and poor reorders, since post-Christmas inventories were still high.

All three banks noted that well-heeled customers "traded down" over the holidays.
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