Luxury industry bets on U.S. and China

NEW YORK Tue Jun 1, 2010 7:34pm EDT

Isabelle Ardon, head of SG Gestion's $31.5 million luxury fund, speaks May 31, 2010 at the Reuters Global Luxury Summit in Paris. REUTERS/John Schults

Isabelle Ardon, head of SG Gestion's $31.5 million luxury fund, speaks May 31, 2010 at the Reuters Global Luxury Summit in Paris.

Credit: Reuters/John Schults

NEW YORK (Reuters) - Europe's brewing economic crisis is threatening to halt luxury's rebound, but the industry is banking on growth from China and a recovering U.S. market.

Leading executives from luxury retailers and design houses told the Reuters Global Luxury Summit that demand for fine merchandise was picking up in the United States, while China's shoppers were venturing frequently into Tokyo for top brands.

"The euro zone is a sizable market, but today the growth reserve is in the emerging countries, and particularly in China, whose demand is pulling the entire sector," said Isabelle Ardon, head of Paris-based SG Gestion's luxury fund.

"For the Chinese consumer, luxury is synonymous with Western heritage. Today there are no big Chinese luxury brands, so there are no competitors", she said.

The debt crisis and depreciation of the euro have raised concerns of a double dip global recession that could knock luxury spending back down after a fragile recovery.

Last week, upscale U.S. jewelry retailer Tiffany & Co (TIF.N) reported that sales at its Asian stores open at least a year, excluding those in Japan, had risen by 21 percent during its most recent quarter. It operates 11 stores in China.

U.S. leather goods maker Coach Inc (COH.N), which generates a combined 90 percent of its sales at home and in Japan, said it is making the Chinese market its top priority.

"As we move toward becoming a global brand, The No. 1 opportunity for us is China," said Coach Chief Executive Lew Frankfort in New York. "We believe the opportunities are boundless in that market ... We are talking about the emerging professional female in China.

Frankfort said he expects sales in China to rise to $250 million in two years from about $100 million this year.

Japanese companies, facing a stagnant home market, are also turning to China to fuel their growth.

Jeweler Mikimoto & Co plans to open its fourth store in China next month, expecting double-digit growth in what it believes will become the world's biggest jewelry market, President Noriyuki Morita told Reuters.

Shiseido (4911.T), Japan's largest cosmetics firm, expects sales of its high-end cosmetics to grow up to 20 percent a year in China over the near term, making it a key pillar of its global expansion plans, said company president Shinzo Maeda.

U.S. RESILIENCE

U.S. luxury demand has bounced back strongly so far in the first half of 2010 and is still somewhat untapped compared to Europe, making it a strong draw for big luxury names.

Privately held Barneys, which operates eight U.S. stores and licenses its name to a handful of Japanese stores, has no plans to expand abroad, despite overtures by overseas developers.

"We're focused domestically right at the moment," said Barneys Director of Stores Michael Celestino, citing the sales growth in the retailer's home market.

A number of top French retailers such as Hermes (HRMS.PA) and privately held leather good maker Longchamp have been raising their U.S. profiles with new stores planned.

Longchamp Chief Executive Jean Cassegrain told Reuters last week that the U.S. was still something of an emerging market given that its consumers, despite their affluence, spend less on luxury items per capita than Europeans.

Milton Pedraza, chief executive of New York-based Luxury Institute, said pent-up demand and a still growing U.S. population made the United States an essential market. But he sees any recovery as fragile while unemployment remains near 10 percent, new financial rules weigh on Wall Street and local governments consider raising taxes to plug budget deficits.

"The aspirants will come back when unemployment comes down to 5 percent," said Pedraza.

Despite the possibilities for well-known European brands in the U.S. market, it can be a tough slog, one executive said.

"Hermes has a strong presence in the U.S., but this is more due to their brand than to the potential of the U.S. market," said Cerruti Chief Executive Florent Perrichon.

"European luxury is less appealing to American consumers than it is to Asian consumers."

(Reporting by Phil Wahba; Additional reporting by Mariko Katsumura, Yumiko Nishitani and Ritsuko Shimizu in Tokyo, Antonella Ciancio, Astrid Wendlandt and Pascale Denis in Paris; Editing by Michele Gershberg, Phil Berlowitz)

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