No quick fix, concludes luxury goods conference

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The world's luxury goods industry is going through a "maturity crisis" but has put all the correct measures in place to rebound when markets revive, said Morgan Stanley head of mergers and acquisitions Michael Zaoui yesterday

Hopes for a quick return to growth are not realistic for a sector that has become more cyclical and dependent on economic and tourism swings. Speaking at the Luxury Unlimited conference in Paris, organised by International Herald Tribune, Zaoui said that the current downturn was steeper than the seven-month depression at the time of the Gulf War in 1991, and the ten-month period in 1997-1998 during the Asian economic crisis.

"With few exceptions, luxury companies won't grow revenue this year," said Zaoui. 

A period of frenetic industry consolidation was over and multi-brand groups are now retrenching, said Zaoui. The total volume of merger and acquisition activity in Europe had shrunk to $800m this year from $10bn in 1999. The diminished exclusivity of many luxury brands - as more people can afford them -has also made these companies more sensitive to wider consumer and tourism trends.

"This is rapidly turning into a cyclical industry. For a while we thought luxury offered unlimited growth. Now we have woken up," said Zaoui. The ten largest luxury goods groups have collectively opened 1,400 new stores since 1999 at an estimated cost of $4.5bn before this rate of growth slowed. "Most of that 1999 action went on multi-brand construction," said Zaoui, referring to the strategy first defined by LVMH and Gucci. Zaoui said those companies were also spending more on advertising: some $1.1bn or 8% of turnover compared to 6% in 1995.

On the question of multi-brand groups versus smaller agile specialists Zaoui said: "It is a hotly-debated issue and not what the key players appear to think. If you look at the balance of recent acquisitions and divestments there's been a lot of housekeeping, cost cuts and what they call portfolio clarification, which means the sale of underperforming assets."

"There's been a lot of soul-searching in the industry," Zaoui told the conference. "In principle it is a good idea, it can create synergies in production and can drive revenue. But how many multi-brand groups have the talent to successfully develop more than one meaningful brand?" asked Zaoui. "I think the jury's out." 

Yannick Grelot, founder and president of Paris consulting firm Nouveau Siecle presented the findings of a study on customer service provided by 14 luxury brands, a joint project with the Essec MBA School of International Luxury Brand Management. Whereas some companies offer superb service, others still fail to deliver the experience or the magic which consumers expect of a luxury purchase. On the question of basic services such as catalogues, advice, repairs and after sales service brands had made almost no progress in the last three years. Only 61% of stores surveyed had sales staff opening doors for customer, a rate unchanged since a previous study in 1999. 

This is a difficult, even decisive, moment for the luxury industry after a dramatic period of expansion in the 1990s. As Gucci Group president Domenico De Sole puts it: "In the short term the world seems very different. And how events will impact on everything, including luxury, is very unclear."