LVMH and Richemont have released 2002 half-year statements; the results have been mixed, as a slow economy and the continuing weakness in tourism have impacted growth.
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However, industry players can feel optimistic about the steady growth in the number and value of mass affluent and high net worth consumers, which will provide a sound base to develop and grow the prestige market.
LVMH has done well with a 10% rise in operating income but only achieved a marginal increase in turnover from €5.7bn to €5.8bn (US$5.6bn). Fashion and leathergoods, and wines and spirits units have performed well and the company continues to bankroll the selective retailing unit, where losses are declining.
However, other units have not done so well. LVMH has been juggling with its jewelry and watches unit, ending the manufacturer of brands outside the group and changing the product line up, resulting in a 3% drop in sales.
Richemont has seen sales decline 5% on a like-for-like basis and will not even make concrete forecasts for the remainder of the financial year. In Europe, its most important market, sales fell by 6%.
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By GlobalDataDifficult economic conditions have impacted progress but the long-term prospects, particularly in Europe, are encouraging. In 2001, there were 22 million western Europeans with over €50,000 in disposable assets, a figure that is set to rise to €27m by 2006. The value of the assets held by these wealthy consumers will increase from €5,000bn to over €7,000bn over the same period.
This growth in the number of wealthy consumers has the potential to fuel a boom in the prestige consumer goods industry, particularly in drinks and personal care, provided manufacturers and retailers take action to develop this growing market. Datamonitor predicts that prestige drinks sales will grow by 6.5% per year to reach a value of just under €4bn by 2006, while prestige personal care will be worth €15bn by 2006, growing at the slower rate of 3.9% per year.
By catering to the specific needs of consumers in search of prestige and protecting the core strengths of a brand while adapting its weaknesses to meet consumer needs, manufacturers and retailers can appeal to a new generation of prestige consumers.
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