Posted by: Charles DuBow on September 29
Despite the biggest one day drop in the Dow since 1987, tonight in Manhattan restaurants will still be full, Town Cars will still be waiting by the curb and Champagne bottles will still be uncorked. But maybe there will be fewer orders of truffles and more of chicken, some people might take a cab instead, and the Champagne may be by the glass instead of the bottle.
During the recent economic boom New Yorkers of many different backgrounds and incomes have become so used to luxuries of all kinds that they tend to regard them as a matter of course. In much of the rest of the country, however, people rarely dine out, a limo is strictly for weddings and prom night, and Champagne is often eschewed in favor of beer. Yet in Manhattan and its siser cities--San Francisco, Washington, Shanghai, Chicago, London, Moscow, et al--the lingua franca is American Express.
And on this night when the market fell nearly 780 points and is flirting with slipping below 10,000, amidst the whirl of cocktail parties and dinners at Nobu many New Yorkers should not be blamed for hearing a little voice in the back of their head whispering: "This is about to all change."
Tomorrow stores like Hermes, Tiffany and Louis Vuitton will open their doors and customers will still come in. These customers may not buy as extravagantly as they once did and some may not return at all. For some people, there is never a time not to think about luxury, because for them the line between luxury and necessity has blurred completely. For others, it may just seem in bad taste to spend at a time when so many are pulling in their horns. And, of course, there will be those who simply can no longer afford it, any of it.
The luxury business will continue. Expensive shoes, handbags, wristwatches and wines will still be made and consumed. But not in the same way, not after today for a while. Companies such as Richemont and LVMH will be forced to adjust their profit targets and sales people around the world will lose their jobs as stores close.
In years to come people will look back upon this period as a golden age of sorts, when so many felt so rich for so many of the wrong reasons. In a way, it's not all bad--except of course for those who will lose their jobs--because it had to stop somewhere. Parties can't last forever, wine bottles empty. For the luxury business, it will be a time to retool, to rethink what they do. Some companies will disappear--but then again some always will. Like a forest after a fire sweeps through it, things may look pretty black for a while but before too long new buds will emerge and old oaks will flower again. When that happens, we won't take luxury for granted anymore. At least not at first.
Posted by: Charles DuBow on September 25
Bad times for Wall Street. Good times for wine merchants like London's Berry Bros. & Rudd.
Ok--this is interesting: South African wine blog Boschendal has a post citing London's most famous wine merchant, Berry Bros. & Rudd, has one of the best weeks in its 310-year history. The reason? At a time when global markets are tumbling, investors are looking to put their money into safe havens--and for many that means vintage wines.
In fact, while BBR has sold around £60.5 million-worth (that's about $112 million) of wine since April, it saw business surge last week by more than $9 million--a 20% jump over the same week last year.
And it wasn't just wine merchants like BBR who saw demand soar. Auction houses Christie's and Sotheby's (BID) also saw strong sales last week. Last week, Christie's sold £1.65 million worth of claret and Burgundy in just two days, with the 2000 vintage of Chateau Lafite-Roshchild fetching the equivalent of £910 a bottle, according to Boschendal. (Christie's is controlled by François-Henri Pinault, the CEO of Paris-based luxury goods giant PPR (PRTP) and son of French billionaire François Pinault.)
Moreover, according to London's Telegraph: "Live-ex, a research company that runs a fine-wine index, estimates that prices of the best vintages have increased by 50% since the start of last year – in sharp contrast to the stock market, where prices have fallen by 15%."
Posted by: Charles DuBow on September 16
There are many different kinds of luxury. While the recent implosion of Lehman and the fears flooding Wall Street will hurt sales of everything from Ferraris to Fendi handbags, one other sort of luxury purchase that has been overlooked is the impact on private education. To most people education isn't a luxury but for those who choose to send their children to private schools it is.
After all, these schools cost thousands of dollars per year. For boarding schools such as Phillips Exeter Academy, the tuition alone is almost $38,000--and that's after taxes. This is the sort of expense now that many people feeling the sting of the downturn in the financial sector in specific and the stock market in general may be forced to seriously reconsider. To be sure, many private schools offer financial aid and they will doubtless be called upon to provide this assistance by some families that had once paid full-freight. But it is also likely that many parents will find themselves pulling their children out entirely and placing them in what are quite often perfectly good public schools. This is not such a terrible thing and may actually be better in the long term for many of the children in question.
Nonetheless, for many families, this will be a difficult decision. It is never fun to shake up a child's life and move them away from a familiar environment to one that is new and different. (Especially if Mom or Dad has lost their job and belts are being tightened across the board.) It may also be a challenging period for the schools themselves which prospered during the fat years when demand for applications often surpassed supply. They will now have to scramble to compete for qualified students whose parents can afford the tuition and struggle to provide financial aid to the rest without bleeding their endowments white.
Of course, it is hard to feel too sorry for private school kids or their parents. But for many a private education may soon be a luxury they will have to forego.
Posted by: Charles DuBow on September 04
The extremely rich don't always get extremely richer. According to a new report from the Boston Consulting Group, global assets under management (AuM) are estimated to shrink 8% from 2007 to 2008. Victor Aerni, a partner in BCG's Zurich office and co-author of the 2008 Global Wealth report said that "in 2006-07, there was approximately $109.5 trillion AuM. Our estimates for 2008 is that the market has shrunk and valuations have come down to around $100 trillion. We don't see it growing again this year."
Put another way that means the world lost approximately three times the 2007 U.S. federal budget.
In fact, the revision is even more dramatic given that the report had originally projected that global AuM would reach a record $113.2 trillion.
Aerni, however, emphasized that BCG is bullish in the long term and is "confident that the global economy will come back as it did after the financial crisis of 2001." BCG predicts that global AuM in 2012 will reach an astonishing $138.3 trillion.
One of the more interesting facts presented by BCG is that while the U.S. has far and away the most millionaire households, in 2007 Europe had the strongest growth in millionaire households. From 2002 to 2007, the number of millionaire households in Europe grew 19.1%, whereas in the U.S. it grew 10.2%. For the purpose of the report BCG included the fast-growing regions of Russia and Eastern Europe within Europe.
The region with the second-greatest growth was Latin America, which posted a 15.8% jump in household with more than $1 million in investable assets.
Moreover, there are many markets that are seeing a surge in investable assets. Brazil grew 45.2% between 2006 and 2007, followed by Poland, China, Slovakia and Chile.
The takeaway is that despite the global credit crunch and economic spanking nearly everyone seems to be taking there is still enormous amounts of wealth out there. Let's just hope we don't see too many more years when global AuM sheds more than $10 trillion.
Posted by: Charles DuBow on September 02
It's easy to see why people might be a little confused about the state of the luxury market these days. In addition to my other duties here at Businessweek.com, I am also (shameless plug) participating in our new beta community site, the Business Week Business Exchange. The idea is that participants, both BW staff and anyone else who wants to, can create and maintain their own mini sites on virtually any business-related topic one can dream up and encourage other people to add content and comments. One of my topics, surprise, is Luxury Retailing. (Check it out, it's pretty cool.)
Anyhow, the really useful thing is that in the months I have been doing this I have been reading practically every luxury retailing-related news story printed in English on the net. But, of course, when one reads so much about a single topic one inevitably encounters many different opinions and quite a lot of contradictions. Which takes me, finally, to the subject of this post: Is the luxury retail market in trouble or not?
According to the left-leaning folks at England's Guardian newspaper, it is in deep designer doo doo. A story on August 31, "Luxury brands suffer as rich guard their millions" implies that in London shops such as Armani, Cartier, Louis Vuitton, De Beers and Asprey are seeing a big fall-off in business, a fall-off that will only continue to get worse because there's no way that the uptake in business from developing markets such as Russia, China, et al, can offset the loss in revenue from mature markets like the U.S. Ugh. It looks pretty bad for $5,000 handbag makers.
But wait! Reuters, who keep its political views pretty well under wraps, has a different take. In a story that appeared on August 29, the writer says that "luxury brands show no sign of a let-up in demand." Moreover, as the article points out: "France's Hermes (HRMS), Gucci (GUCG) and Italy's Tod's (TODGF) all published earnings that topped or met market expectations on the back of impressive double-digit sales growth in the first half."
Who to believe?
