Luxury-goods Groups Casting an Eye Towards Indonesia

AT a time when many consumer-goods segments are suffering, luxury is rich with promise. The world's biggest luxury-goods purveyors are coming off a blockbuster 2011 with even more confidence for this year as emerging markets power seemingly relentless demand. Global leader LVMH Moet Hennessy Louis Vuitton SA reported 20% sales growth for the last quarter of the year.

Gucci owner PPR SA continued in the same vein with a 22.1% increase.  There are no signs of that trend changing anytime soon, luxury executives say.

“We're lucky to be operating in a segment that has become very international,“ said Francois-Henri Pinault, chief executive of PPR as quoted from The Wall Street Journal,  which also owns high-end fashion labels such as Yves Saint Laurent, Bottega Veneta and Balenciaga. There's structural growth in Asian markets, and it's a certainty that for the next 10 years it will grow.

Yet the rising tide isn't limited to China. Luxury-goods groups also are casting an eye towards the next big countries such as Brazil and Indonesia, with their huge potential as consumers of high-end items. And certain slices of the industry - such as men's fashion, shoes and watches -- are particularly booming.

“Barring a major accident and despite the difficulties in Europe, the world economy is growing and the world wants more and more of our products,“ LVMH Chief Executive Bernard Arnault said earlier this month.

The boom contrasts starkly with trends on the lower end of the retail scale. The makers of more mundane consumer products, from groceries to mass-market fashion, are encountering stingy shoppers. Yet the luxury-goods industry seems immune to the caution that has characterized many American and European shoppers in recent months.

A global luxury-consumer class is emerging with the taste for expensive bags, perfume and champagne, regardless of the market turbulence and austerity measures that are rocking smaller household budgets. The crowds of Chinese tourists that are generating double-digit-percentage growth for tony fashion labels in Europe is one illustration of that.

To be sure, some people caution that expectations for the industry's growth have overheated. It will be hard to duplicate 2011's soaring sales, analysts say, even if demand stays strong. “Last year's level of growth just isn't sustainable,” says Thomas Mesmin, an analyst at French brokerage Cheuvreux.

There are signs, too, that the entry-level end of the industry is more sensitive. Last month, U.S. jeweler Tiffany & Co. -- which in addition to all of its diamonds sells moderately priced silver items -- cut its earnings forecast after cautious holiday spending.

In addition, luxury-goods makers are finding it increasingly hard to keep up with demand. LVMH said it doesn't have enough stock of its high-end liquors, especially Cognac, for the Chinese market.

French leather-goods maker Hermes has trouble producing enough of its famous Kelly and Birkin bags, costing thousands of dollars, to keep up with orders.

Luxury-goods makers are planting their roots world-wide, not just in Asia, to tap into this new global consumer class. Of the 110 store openings PPR is planning this year for its luxury division, taking its grand total to over 900 shops, only half will be in Asia.

Yves Saint Laurent and Balenciaga are getting new flagship stores in Paris. The group plans to cut the ribbon on four new outposts in Brazil.

Especially in emerging markets, many of the first buyers of luxury goods are men -- and companies are catering to them. Last November, PPR bought Italian suit maker Brioni. LVMH is developing its men's cobbler Berluti into a full line of men's fashion and accessories, unveiled at a posh presentation in Paris last month.

PPR is opening dedicated men's boutiques for houses such as Gucci, Bottega Veneta and Balenciaga this year in China and the U.S., expanding on a pilot program launched last year.

Executives still see huge potential for growth even in historical brands. LVMH says it is having remarkable success with labels such as Loewe and Celine, which had stagnated in its closet for years.

Vuitton, its biggest brand, continues to power on, and analysts estimate it now brings in 6 billion euros ($7.8 billion) a year in sales. Pinault says the Gucci brand by comparison is just an “adolescent“ after breaching 3 billion euros in sales for the first time last year.

“We think it is still far from its maturity,“ he said. [photo special]