Avoiding the Bumps: No Slowdown Ahead For Booming Luxury

The luxury engine just keeps purring and industry executives and analysts haven't been this upbeat about the upscale market since the Nineties.

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A crocodile Dior bag.

Photo By WWD Staff

A tweed look from Chanel.

Photo By WWD Staff

NEW YORK — The luxury engine just keeps purring.

Industry executives and analysts haven't been this upbeat about the luxury market since the Nineties. Their comments about the remainder of the year are becoming a refrain of bullishness, echoed by everyone from Bernard Arnault of LVMH Moët Hennessy Louis Vuitton to Johann Rupert of Compagnie Financière Richemont SA, Burt Tansky of Neiman Marcus Group to Diego Della Valle of Tod's.

This is despite a plethora of potential road bumps that in the past would have created more caution among executives — higher fuel prices, inflation, the weaker dollar, the threat of terrorist attacks and Hurricanes Katrina and Rita — not to mention the lowest level of consumer confidence in the U.S. since October 2003 (for more on confidence, see page 16).

Why the optimism? Point to the booming stock market and the phenomenon of "trading up."

"The effects of the [bull] stock markets on consumers are immediate," said Michele Norsa, chief executive officer of Valentino Fashion Group. "Tourism has picked up, new markets are opening up and there is a lot of cash around. All markets are growing for the first time in years: Asia is showing a growth rate between 5 and 10 percent, the U.S. growth is 4 percent, Japan is growing and the election victory of [Japan's prime minister], Junichiro Koizumi, is surely a positive event that promises even more growth. Japan has always grown slowly and consistently, but we've seen a 20 percent growth in our stores since Sept. 1."

Norsa said August, which is usually a slow month, "was much stronger for us this year and we registered a 37 percent growth in our stores around the world."

Luxury brands plan to open more of their own stores over the next few years, especially in the U.S., the Middle East and Asia. But department and specialty stores are benefiting from the boom as well.

"The luxury market is the place to be," said Howard Socol, chairman, president and ceo of Barneys New York. "It just continues to see double-digit increases, and it's been double digits for two-and-a-half years. Gas prices will affect the lower tier, not luxury. What really affects luxury stores is the stock market. If the market is anywhere from flat to increasing, luxury will be strong. Without any dips, there will be a nice Christmas."
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