Unemployment casts shadow on luxury recovery
NEW YORK |
NEW YORK (Reuters) - A rebound in U.S. luxury spending remains fragile due to high unemployment and the specter of higher taxes and stricter rules on how Wall Street operates, a top industry consultant said on Tuesday.
"The aspirants will come back when unemployment comes down to 5 percent," Milton Pedraza, chief executive of the Luxury Institute, said at the Reuters Global Luxury Summit in New York.
He was referring to shoppers with an average household income of about $150,000 to $300,000 who helped prop up the industry, many by living beyond their means, during the economic boom of the previous decade. They were the consumers who cut back the most, suddenly and dramatically, during the more recent recession.
The U.S. unemployment rate is expected to dip to 9.8 percent when figures are released on Friday, but Pedraza cited estimates that a decline to 5 percent could take as much as five years.
While luxury spending has rebounded strongly in the first part of 2010, the European debt crisis and the potential for higher taxes in Western countries as governments there plug holes in their budgets could stop luxury's comeback, Pedraza said.
But he added that some top luxury purveyors such as LVMH (LVMH.PA), Tiffany & Co (TIF.N) and Richemont (CFR.VX) took advantage of the turmoil in the past two years to win market share, gaining greater clout in negotiating with suppliers and luring more consumers to their classic brands.
Pedraza also said top companies would likely prune their portfolios, which often house dozens of brands, to focus on their most-established names and supplement them with a few smaller assets.
Some U.S. luxury retailers who are still sticking close to their home turf for exclusivity might be hurting themselves in the long run.
Pedraza, who termed the strategy as a "self-imposed limitation," said overseas markets like China could be key growth engines for luxury players. He also sees Japan as a "cash cow" for those brands who can manage costs well.
While many upscale retailers like jeweler Tiffany and leather goods maker Coach (COH.N) have looked at fast-growing markets abroad to boost sales, many others like department store chain Saks Inc (SKS.N) are still very focused on their domestic markets.
"What is holding them back is their own perception of the world -- meaning they don't see themselves as global brands, they see themselves as regional brands," Pedraza said.
He sees room for all luxury brands to go global.
"I would argue that all American brands that are luxury -- Harley Davidson -- have an opportunity to expand globally," he said.
(Reporting by Dhanya Skariachan and Phil Wahba; Editing by Michele Gershberg and Matthew Lewis)
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