UPDATE 1-Reuters Summit-Luxury market recovery seen slow

((For other news from the Reuters Global Luxury Summit, click here))

(Adds background on Tiffany earnings)

By Martinne Geller and Astrid Wendlandt

NEW YORK/PARIS, June 7 (Reuters) - At a time when just being able to afford the rent seems like a luxury, purveyors of high-end jewels, fashion and handbags are facing challenges like never before.

Sales of luxury goods, which are expected to drop 10 percent this year, will not recover fully until 2012, according to a new report by Bain & Co, as austerity and understatement remain the "must-have" items of the rich and fabulous.

Against that backdrop, chief executives from Burberry Group (BRBY.L), Hermes (HRMS.PA), Tiffany & Co (TIF.N) Rolls-Royce (RR.L), and Richemont's (CFR.VX) Van Cleef & Arpels, will gather this week at Reuters' first-ever Global Luxury Summit to share their recipes for success in hard times.

So far these recipes include managing costs carefully and planning conservatively. But beyond just navigating the storm, one question on everybody's lips is: will the glory days ever return?

Bain partner Claudia D'Arpizio said she does not expect annual luxury goods sales to recover to the level of 2007 -- before the U.S. recession set in -- until 2012.

"Consumers 'shop their closets,'" D'Arpizio said in her report, "reusing purchases from past years." But when they do shop, she said consumers are investing in "evergreen" items rather than trendy fashion pieces.

"Austerity is fashionable, even for the wealthiest consumers," D'Arpizio said.

After falling 10 percent in 2009, D'Arpizio said she expects luxury sales to rise 1 percent in 2010, 4 percent in 2011 and 7.5 percent in 2012.

While everyone is under pressure, leather goods and popular fashion houses are remaining the most resilient. The worst declines have been seen in watches, followed by jewelry.

Late last month Tiffany posted a worse-than-expected 62 percent drop in quarterly earnings. The upscale retailer said sales trends had improved slightly in May, but not enough for it to raise its full-year outlook as the rough economy persists.

Longer-term, D'Arpizio and other luxury optimists believe sales will return as the global economy improves and luxury goods companies have yet to fully penetrate many markets in Eastern Europe, Latin America, Asia and the Middle East.

"I think the luxury industry will be back," Scilla Huang Sun, who runs a $30 million luxury fund at Julius Baer, told Reuters.