By Astrid Wendlandt and Mark Potter - Analysis
PARIS/LONDON (Reuters) - Luxury goods groups need to brace themselves for at least two more years of pain, with big-ticket items such as cars and watches suffering most, even if some U.S. brands and retailers are seeing signs of recovery.
Luxury goods executives told the Reuters Global Luxury Summit this week they were doing their best to preserve cash and cut costs, delaying store openings and cutting advertising.
It will probably take longer than first thought to reverse negative trends as consumers feel uncomfortable spending $40,000 on a Chopard watch or $400,000 on a Lamborghini while thousands are losing their jobs and the economic future remains uncertain.
"I think the crisis is very deep," said Lamborghini Chief Executive Stephan Winkelmann, adding the sports car maker had cut production by 30 percent this year.
"A lot of companies are going out of business," he said.
Global luxury goods sales are set to drop by at least 10 percent this year and remain sluggish in 2010, industry experts and analysts predict. Consultants Bain & Co do not see a full recovery before 2012.
"In my opinion, turbulence will last long, maybe two years," Hermes (HRMS.PA: Quote, Profile, Research, Stock Buzz) Chief Executive Patrick Thomas said.
Watchmakers could see the worst in the autumn, said Swiss luxury timepiece maker Parmigiani Fleurier, as overstocked retailers will not want to place major orders before the pre-Christmas season.
Burberry (BRBY.L: Quote, Profile, Research, Stock Buzz) predicted so-called "aspirational" consumers were unlikely to return to buying expensive items any time soon. The British luxury brand has axed 15 percent of staff and cut inventories by 19 percent.
U.S. fashion company Liz Claiborne (LIZ.N: Quote, Profile, Research, Stock Buzz) said it expected sales to remain under pressure for some time as even shoppers who could still afford to splurge had become more thrifty.
"It's not a matter of 'what she can afford to spend?' It's 'what's the price that she can get it at?'" said Liz Claiborne Chief Executive William McComb.
EMERGING, BUT NOT ENOUGH
The longer term prospects of the luxury industry remain attractive as the number of affluent buyers is set to rise further and several regions such as central Asia, Siberia, Latin America and India have not yet been fully tapped.
But this is unlikely to be enough to make up for the pain in established markets, especially as the slowdown is forcing luxury groups to hold back investments in the newer frontiers.
"Emerging markets growth is likely to contribute the bulk of future luxury goods market growth but it is not likely to offset the impact of lower macro-economic growth in the next 5-10 years and bring us back to luxury goods market growth of the past 5-10 years," Bernstein Research said in a note. Continued...
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