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Rediff.com  » Business » Luxury goods makers start to feel chill of recession

Luxury goods makers start to feel chill of recession

January 25, 2008 13:32 IST
Signs that even the world's richest consumers are falling prey to recessionary fears gathered pace as two big luxury goods makers said demand from Japan and the US for Cartier watches, designer handbags and fine jewellery was slowing.

Richemont, the world's second largest luxury company, said on Wednesday that underlying growth slowed to10 per cent in December - against 14 per cent for the full quarter - as demand waned in the world's two biggest economies.

The news sent shares in the maker of Cartier watches and Montblanc pens down 6.65 per cent to SFr58.25. The group narrowly missed forecasts with an 8 per cent rise in group sales to euro 1.67bn ($2.56bn). 

Coach (NYSE:COH) , the largest US maker of designer handbags, added underlying sales in its US retail stores had fallen during the second-quarter, down 1.1 per cent. The drop in same-store sales in 2007 compares with a 25.7 per cent increase in the holiday period in 2006. Coach said the drop in transaction sizes had been "unexpected".

Lew Frankfort, Coach chief executive told Reuters news agency: "My own view is that we're already in a consumer recession.

"We do need a tax stimulus package," he added, suggesting that this week's 75 basis points cut in the US Federal Reserve's benchmark Fed Funds rate was not enough to boost spending.

The picture is mixed however, as people within the Italian luxury goods sector have not yet reported signs of a slowdown, in spite of holding expectations that consumer confidence is likely to fall and this year could be tough. Aeffe, the holding company which makes Moschino, Alberta Ferretti and others, said this week there had been "no negative signs" in the US, including the Christmas period and this month so far. 

Armani, which is private, said on Wednesday that 2007 had been another positive year and had continued the growth seen in 2006. A company official said it was too early to tell whether the stock market declines of recent days would have an effect.

Two pillars of Italian luxury - Prada and Salvatore Ferragamo - are pressing ahead with plans to list on the Milan stock exchange although bankers pointed out that they would wait until nearer the time of the listing to change their minds if demand and valuation were lacking. 

Elizabeth Rigby and Norma Cohen in London and Adrian Michaels in Milan
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