Bain & Co., a leading consulting firm, estimates that luxury goods sales will fall 20% in the first half of 2009 before stabilizing in the second half. In all, Bain expects luxury goods sales will fall 10% for the year. In October, Bain was forecasting a drop of just 7%, but conditions have deteriorated quite a bit since then.
The Wall Street Journal reports (subscription required) that "The U.S., which accounts for roughly a third of luxury-goods sales, is one of the worst-hit markets. Bain expects U.S. sales of high-end clothing, accessories, tableware, cosmetics and jewelry will drop by 15% this year. That compares to expected sales declines of about 10% in both Europe and Japan."
Historically, luxury goods have been resistant to recessions, but this time luxury retailers have been hurt worse than the economy at large. What accounts for the discrepancy? Part of the problem may be that luxury retailers reporting strong sales growth in recent years as they attracted increasingly aspirational customers, a very different sort from the multimillionaires who were once the core constituency for companies like Louis Vuitton and Prada. The cheap credit and idolization of luxury that drove the industry's growth in recent years has made it far more vulnerable to economic cycles than it was when it was a niche market.
The question now is how quickly -- if at all -- those marginal customers who have traded down will come back. If we're entering a new era of thrift, they might not come back at all. They might just realize that Marshalls is just as good as Neiman Marcus.
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