Retail, Luxe Sectors Battle Shock Waves From War and Sars

Goldman Sachs in London downgraded its stance on the European luxury sector due to concerns over an extended war in Iraq and the deadly SARS virus.

War and disease are coalescing to create an ever-darkening cloud over the luxury and retail industries.

Growing concern over the deadly pneumonia called Severe Acute Respiratory Syndrome, or SARS, has disrupted industry travel to the Far East, while the epidemic and the war in Iraq are hurting consumer confidence and travel flow in Asia, which fuels some 30 percent of luxury sales. The disruption caused luxury goods analysts on Wednesday to revise their already-downbeat forecasts for the sector, with some warning that, in a worst-case scenario, it could further reduce luxury groups’ profits by up to 15 percent.

Another sign of the disruption SARS is creating in the industry came on Wednesday when the Swiss government barred about 400 exhibitors from Hong Kong, China, Vietnam and Singapore from participating in the prestigious Basel World Watch and Jewelry show, which gets under way today. However, the measures do not apply to visitors who have arrived from countries reporting outbreaks of SARS, which has been spread around the globe by travelers.

The Hong Kong Trade Development Council, which represents 317 firms, said it was "disappointed and surprised" that the decree was issued after most Hong Kong exhibitors had arrived in Switzerland. It added that it had sought legal counsel on the restriction.

Several U.S. retailers already altered their travel plans to Basel because of SARS and the war. While executives from Neiman Marcus, Tourneau and London Jewelers are already there, such retailers as Saks Fifth Avenue, Mayor’s Jewelers and Mayfair Jewelers are staying away this season.

Lauren Kulchinsky, vice president and fine jewelry buyer at Mayfair Jewelers, noted: "We decided against going because we felt it wasn’t the wisest decision to go overseas right now. And with SARS…because there are so many different types of people that attend Basel, I didn’t want to be in danger of being quarantined coming home."

SARS also is having other effects throughout the sector and at all levels. Ferragamo chief executive Ferruccio Ferragamo warned Wednesday that both the war and the epidemic will impact the industry for months ahead. "If we can get through 2003 and have sales in line with those of 2002, it will be a good thing," he told WWD as the company announced that 2002 sales fell 8.7 percent to $638.29 million from $699.5 million a year earlier.
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