Weakness In Luxury Goods?

Time has an article on the luxury market in general and Burberry in particular.  After much growth in the luxury market category, much from the BRIC nations, there are now sign of slowing.  Burberry, after announcing earnings may be slowing lost 21% of its stock price, dropping $1.6 billion in value.  Burberry representative believe it is a macro trend as GDP is falling in many countries.

Time reports

Analysts now worry that Burberry’s slowdown could signal a reversal in fortune for the luxury sector at large, which rebounded more quickly from the global economic crisis than other sectors. The consulting firm Bain & Co. estimated that the global luxury market expanded to 191 billion euros in 2011—up 10% from the previous year. And in May it forecast that the sector would grow by another 7% in 2012, “defying initial concerns over Eurozone turmoil and fears of a cool down in emerging markets.”

That now seems premature as investors cash out of several top-flight brands. Switzerland‘s Richemont Group, which encompasses Cartier and Van Cleef & Arpels, fell 6% after Burberry’s warning. French luxury conglomerate LVMH reported a 4% drop in share prices. And Prada and Ralph Lauren also fell 4%.

To understand much of the woe, it’s important to look East. China—the engine that helped the luxury sector buck the recession—is experiencing its slowest economic growth in three years. And retail sales there are finally slowing. It’s possible that brands like Burberry, which have invested heavily in the world’s second-biggest economy, are now feeling the pinch.

Stacey Cartwright, Burberry’s Chief Financial Officer, doesn’t believe that tells the full story. At the time of the announcement she stressed that the company’s slide reflects macro trends, and not merely the slowdown in Asia, which accounts for 40% of its revenues. “We know from our partners that travel patterns are down,” she said after the announcement. “We know that GDP is down globally.”

Source: Time