Whilst financial results still seem to be impressive and with growth in all regions, the once burgeoning growth is not as high as it once was.

Richemont, the world’s second largest luxury group (behind our friends at LVMH) released their results this week, where the company has said that they are cautiously optimistic for the future despite the unstable economic environment.

Sales increased by 29 per cent to €8.867 million, whilst Richemont’s operating profit rose by 51 per cent to €2.040 million.

The Swiss luxury group said net profit rose 43 per cent to €1.54 billion. Both the net profit and sales exceeded analyst’s expectations.

Leading the way was the Group’s jewellery Maisons and its specialist watchmakers who have reported record sales and profits, despite the strength of the Swiss franc and the rising cost of precious metals and input costs.

Montblanc continued to grow and reported increased profits.

Richemont’s fashion and accessory Maisons also performedwell. “IT” high-end fashion website Net-a-Porter continued to enjoy sales growth above the Group average, while at the same time investing in structural expansion.

The Asia-Pacific region is the strongest for Richemont, now representing 42 per cent of the Group’s sales. Hong Kong and mainland China were the strongest when it came to sales in the Asia-Pacific.

Solid double-digit organic growth was registered across Europe. Sales were boosted by the growing number of travellers from other parts of the world. The Middle East and Africa, which accounted for 16 per cent of sales in the region, reported strong growth as well.

Richemont didn’t disclose financial figures for the Americas, with the region reporting robust double-digit growth reflecting the growing demand for jewellery and watches.

“Although sales in the month of April were 29 per cent above the comparative period, or 20 per cent at constant exchange rates, we are mindful of the unstable economic environment, particularly in the euro zone. The enduring appeal and the development potential of each of our Maisons lead us to focus our investment on the Group’s organic growth. Investments are primarily dedicated to the expansion and integration of the Maisons’ respective manufacturing facilities, as well as growth in their retail networks. Selective boutique openings will be focused in growth markets and in tourist destinations around the world. Our Maisons remain entrepreneurial and innovative businesses at heart. More than ever, we are convinced of their resilience and long-term prospects. We therefore look forward to the future with cautious optimism.” Johann Rupert, Richemont Executive Chairman and CEO said.

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Salvatore Ferragamo reported a rise in profits in the first quarter of 10.2 per cent to €15.5 million, due to growth in all geographic regions and increased sales of shoes, bags, leather accessories and perfume across the board.

Sales were up by 23.4 per cent to €259.6 million, which was mainly attributed to strong sales in the Asia-Pacific region where sales increased by 27.3 per cent.

China is still leading the way with sales up by 36 per cent and Japan up by 9.9 per cent.

Despite the financial woes still evident in parts of Europe, Ferragamo consumers stayed loyal, with sales going up by 27.8 per cent.

Sales in the US increased by 17.6 per cent, despite the temporary closure of its Fifth Avenue flagship store, due to renovations. The NY store is the group’s biggest source of turnover.

Looking at the product categories, sales of shoes climbed 26.2 per cent, while bags and leather accessories sales increased 24.3 per cent. Bags and shoes represent almost three quarters of total company sales. Perfume sales rose by 35.7 per cent, which was due to the launch of the new Ferragamo ladies’ fragrance Signorina.

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When The MO Down read this notice on the Reuters website, we nearly spilled coffee down our couture as it contradicts some of the negative commentary that we’ve written about.

The outlook revision and affirmation follow LVMH’s reported strong operating performance in 2011 and reflect S&P’s anticipation that LVMH will likely achieve increasingly conservative financial metrics as of this year.

The ratings continue to be underpinned by S&P’s view of LVMH’s strong business risk profile, which since 2010 has benefited from the sharp rebound in the global luxury goods markets. LVMH has an unparalleled world-leading position with a flurry of prestigious luxury brands in their portfolio.

S&P believe that luxury goods will continue to benefit from favourable growth trends on the back of robust momentum in emerging markets.

LVMH has started 2012 with an exceptional performance, announcing a vigorous 25 per cent jump in sales in the first quarter.

S&P view LVMH’s financial policy as conservative.

The positive outlook reflects the possibility that they could upgrade LVMH if it continued to report robust sales growth, generated high free cash flow, and achieved adjusted FFO to net debt in excess of 60 per cent on a sustainable basis. S&P expect discretionary cash flow to exceed €1 billion in coming years.

S&P might consider revising the outlook to stable if LVMH were unable to maintain its ratio of adjusted FFO to net debt above 60 per cent.

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The U.A.E is one of those places. Luxury houses have found it hard to make their way into one of the wealthiest nations in the world. Most have had to turn to local businesses to make it work.

Tiffany & Co is one of them, but that is about to change with the news that the American jeweller is about to take more control of the brand in the U.A.E, which is unusual given no luxury brands can have full subsidiaries in U.A.E due to laws, so with this revised structure Tiffany & Co. will have more control over the brand it seems.

Forbes reports that Tiffany & Co is restructuring its joint venture with retailer Damas Jewellery, international jewellery and watch retailer in the U.A.E.

Under the new agreement between the two companies, all of operational, merchandising and sales, and marketing management for the five Tiffany & Co stores in the U.A.E will be transferred from Damas to Tiffany.

“This restructuring of our retail presence in the U.A.E through this joint venture with Damas allows us, for the first time, to wholly manage Tiffany’s operational activities,” Laurent Cathala, Tiffany’s VP of Emerging Markets told Forbes.

“It underscores the importance of the U.A.E market to our global expansion strategy and highlights our optimism about the long-term growth potential we see throughout the Middle East.”

Stephane de Palmas has been appointed as general manager of the U.A.E retail operation.

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We have been fortunate enough to see artisans do their ‘craft’ over the years and yesterday we were mesmerised by the Gucci artisans, who are visiting from Florence, Italy.

The Gucci boutique in Sydney’s Westfield played host to the four artisans, who will be touring Sydney and Melbourne before they return to Italy.

The MO Down stopped by to see what the fuss was all about and we were pleasantly surprised.

Watching their hands glide over tanned leather, whilst one monogrammed a wallet with love.. Watching the sewing machine whirr and whirl working on a bamboo handle bag…All done with a smile of course.

Gucci’s customers had the chance to get a customised bag made and able to watch the experience. An experience one wouldn’t forget!

But not only were we spoilt by the up and close experience in store today, we were also treated to a cocktail reception.

Delta Goodrem was there dressed in Gucci and a great unofficial ambassador for the brand, she loves the brand and wears it extremely well. In typical down-to-earth Delta way she was relaxed and grounded and was talking openly and having pics taken with some of Gucci’s loyal clients.  She was genuinely interested in this bespoke craft asking many questions of the Italian craftsmen, perhaps a DG embossed handbag is in the making right now!

The beauty of the artisans making these pre-ordered handbags as the evening evolved was very special, other clients had their wallets personalised with embossing.

A delightful opportunity to experience the time, care, precision and quality that goes into making these leather goods.  Make sure you see them instore, as a reminder the dates are Gucci Sydney Flagship (15-17th May), Gucci The Star (22-23rd May), and Melbourne Chadstone(29-31st May).

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Go West … as the famous Pet Shop Boys song goes…. anyway fantastic news just in is Chanel is finally confirmed to open a full line boutique in November 2012 after many years of searching and  pontificating …They will be joining Prada with a full line boutique and Burberry, Gucci and Louis Vuitton with accessory boutiques, Tiffany & Co., Georg Jensen and Emporio Armani amid a few other fine brands.

“We’ve been looking for the right boutique space in Perth for many years. It is so important to Chanel not to compromise, so waiting for the right location was paramount. With this location now confirmed we can move forward with the construction and its opening,” David Blakeley, Managing Director of Chanel Australia and New Zealand said.   

“We’re delighted to be opening our first Chanel boutique in Western Australia with a full fashion offering. Our valued clients from WA will now be able to shop locally and we’re looking forward to introducing new clients to the House of Chanel from November 2012.”

The much-anticipated boutique will range the latest in Chanel Ready-to-Wear, handbags, small leather goods, shoes, eyewear, accessories and watches all in line with Chanel global launches.

With the opening of the Perth boutique, Chanel will be in four states of Australia. Over the last five years, the French luxury house has boosted its presence here with the opening of four Fragrance & Beauty Boutiques, as well as three new Fashion Boutiques.

Anyone fancy a trip to Perth in November?

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French President François Hollande

We found this great article from businessweek.com with some cautionary tales for luxury brands and forward forecasting. This article would somewhat be more pessimistic that can be taken from recent commentary from luxury brand heads on latest performance figures released…

With the latest financial figures that we have reported, on the surface, luxury companies are looking a-ok, but digging further, you may see a few cracks appearing. Why?

Well, China is experiencing a slowdown and Europe is still in financial turmoil… throw in the recent elections in France and Greece, and some could say the ‘c’ word – chaos..

China’s cooling growth, the political impasse since Greece’s May 6 election and proposed tax increases from France’s new president are hurting the industry. Francois Hollande, who defeated Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, has proposed a 75 per cent levy on incomes above € 1 million euros and raising the income tax to 45 per cent for those earnings more than €150,000. Sacré bleu!

Swatch Group AG (UHR), the world’s largest watchmaker, gets 38 per cent of revenue from China, home to more than a million millionaires, and Burberry Group Plc (BRBY) generates 33 per cent of sales in Asia.

The number of dollar millionaire households in China climbed 31 per cent in 2010 to 1.11 million, ranking the country third behind the U.S. and Japan, according to a Boston Consulting Group survey released last year.

“With the growth momentum in China slowing, what has been pushing the luxury-goods sector higher and higher is bound to weaken as well, and luxury companies will see an end of their massive rally,” said John Plassard, a director at Louis Capital Markets SA in Geneva. “2012 will prove itself a transition year.”

The rally in luxury stocks has pushed Burberry’s valuation to 19.9 times estimates earnings, compared with a low of 5.5 in November 2008, according to Bloomberg data. Swatch shares have risen to 15.1 times forecast profits from a low of 6.5 and LVMH Moet Hennessy Louis Vuitton SA (MC) has increased to 16.9 times from 8.7. Luxury shares are still worth a gamble, but for how long we ask?

“I’ve become more cautious on luxury goods as the valuations don’t look as attractive,” said Peter Braendle, who helps manage $US60 billion at Swisscanto Asset Management AG in Zurich. “I’ve reduced positions in recent months to a light buy, down from a strong buy.” Braendle said he would reduce his weighting to neutral if growth in Asia, especially China, slowed further.

LVMH, the world’s biggest producer of luxury goods, sank the most in four months on April 18 as Finance Director Jean- Jacques Guiony said Asian tourists are shifting some purchases to Europe, where prices are as much as 47 per cent cheaper. The company made 27 per cent of revenue in Asia last year. The MO Down reported recently that prices were hiked up in Europe to combat against this though.

Is the luxury bubble about to burst or continue storming the war front? Food for thought for a Monday perhaps…

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All is gold and sparkly in the luxury world right now and as expected and reported, we can’t see them slowing down anytime soon.

CLSA Asia-Pacific Markets analyst Aaron Fischer released a report “Dipped in Gold”, lamenting that resurgent market consumers are fuelling a strong growth in the global luxury goods market. Growth in the sector was double its long-term average last year, Fischer adds.

He has also predicted global growth of 10 per cent in 2012, slowing slightly from last year’s 14 per cent rise.

That should take emerging markets’ share of global luxury demand to 73 per cent by 2020, up from 50 per cent at present, Fischer predicts, with China playing a leading role.

If one casts their eye over the luxury house’s financial reports, you would see that the U.S, Europe and Asia are doing particularly well. Reuters has broken that down even further and reported that European fashion capitals (think Paris and Milan), New York and Hong Kong are leading the way, and shoppers from emerging markets account for over 50 per cent of luxury sales.

Chanel passed on 20 per cent price increases to consumers last year, with sales still staying bouyant and with LVMH and other luxury companies increasing their prices in Europe to make up for any windfall coming out of China due to high taxes, hasn’t harmed them at all.

Another interesting mention in the Reuters blog is that luxury brands are now benefiting from the growing sophistication of consumers who aren’t content with knock-offs anymore. Between 2008 and 2011, the majority of Chinese consumers interested in buying fakes (oh the thought!) fell by more than half to just 15 per cent, a McKinsey survey found.

The MO Down has kept you at the forefront when it comes to luxury IPO’s. Fischer picks Prada amongst his top picks, as well as Chinese luxury brands Belle, Chow Tai Fook and Lifestyle department store.

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Luxury brands are still turning over very healthy profits, so much so, we are starting to think that there is a shield around them.

Whilst it has been reported that growth is expected to slow this year, due to China holding back their lavish spending and the global currencies taking a dip, the luxury industry is in a healthy state indeed!

Consulting group Bain & Co. and Fondazione Altagamma released a study in Milan this week, which showed that the luxury sector is expected to increase by a further 6-7 per cent at constant exchange rates, reaching record sales of more than €200 billion, or $US261.4 billion.

Which divisions will be the most outstanding? Accessories, watches and jewellery, who at present are leading the way.

WWD delved into the report, which shows that whilst there is a “market maturation”, China is still the main engine of growth, India showing “a new acceleration” and the U.S and Europe, where sales are boosted by tourist flows, are reporting “strong momentum”. Latin America, especially Brazil and Mexico will also play a role an important role.

Whilst China is still expecting to grow by another 18 – 22 per cent, India will be the place to be in the next ten years, according to Bain & Co partner Claudia D’Arpizio.

D’Arpizio characterised the year 2012 as “still strong,” although there are markets that are suffering, such as Italy and Spain, and despite political changes in Europe, elections in the U.S.and tax issues in China. 

Europe is expected to grow 2 to 4 per cent; the Americas 5 to 7 per cent; Japan up to 2 per cent; Asia-Pacific, excluding China, 14 to 16 per cent, and China 18 to 22 per cent, reaching sales of between €15 and 16 billion, or $US19.6 billion and $US21 billion. 

We spoke about China’s growth slowing down and now all the attention is onIndia.

India is expected to grow between 15 and 20 per cent in 2012, reaching sales of between $US1.1 billion and $US1.4 billion. Bain believes it is “poised to create one of the largest global market opportunities in the next decade,” despite the country’s high duties and a lacklustre retail infrastructure. Online shopping is “booming,” and cities such as Chennai, Hyderabad and Pune are emerging as new luxury destinations.

 “Luxury fundamentals will remain strong in the medium term,” with luxury goods expected to rise between 7 and 9 per cent in the 2011-2014 period, reaching between €235 and €240 billion, or $US307.2 billion and $US313.7 billion, driven by accessories and hard luxury. The growth of Asia is not expected to slow down, mainly pulled by Greater China and Korea but also by new markets in Southeast Asia, such as Vietnam, Malaysia and Indonesia. Similarly, Central Eurasia, which regroups widely different countries, led by Turkey, is a new emerging area, as well as South Africa.

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Les Tanneries Roux SAS Chairman Jean-Claude Ricomard

At The MO Down, we appreciate artisans who dedicate their lives to their work. We have watched their hands dart over a piece of leather like it was their lover and then cradle a pair of shoes like it was their child.

Without these artisans, we believe that luxury houses wouldn’t have the ‘luxury’ in them.

LVMH has recently purchased premium leather products manufacturer Les Tanneries Roux SAS.

Financial-news.co.uk reports that Jean-Claude Ricomard will retain his position as Chairman and work to ensure that Les Tanneries Roux continues to follow its successful growth strategy in the years ahead.

Les Tanneries Roux was set up in 1803 in Romans-sur-Isere. The French group is considered the pioneer in the use of calf skins, whose smooth and supple quality makes them very suitable for high-end leather products. In the past two decades, Les Tanneries Roux has counted among its partners the likes of Louis Vuitton, Christian Dior, Loewe, Celine and Moynat.

Last October, LVMH bought a 51 per cent stake in Singapore-based Heng Long International Ltd, one of the leading global suppliers of crocodile skins.

With consumers becoming more fussy in their luxury purchases, the fashion houses have had to stay ahead of the game by ensuring that the highest standard possible is adhered to.

We applaud the Groups such as LVMH and houses such as Chanel and Hermes who are continuing to purchase these specialist manufacturers, artisans to ensure the continuity of these bespoke processes, otherwise their doors will close and literally it will be a lost art…

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