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Downturn hits high-end luxury goods sector

The luxury goods sector in SA is starting to feel the pinch of the global recession as heavily indebted consumers seem to have stopped conspicuous spending.
Alan Grieve, spokesman for Swiss based luxury goods company Richemont, says SA is a strong market, and although small, it is still growing, which reflects increased wealth in the economy.

Richemont has six boutiques in SA. A Cartier store opened in September 2007. It also has two Alfred Dunhill outlets, which are operated by franchisees, and three Montblanc shops that are company-owned.

However, the economy is slowing down, albeit not as much as in the US and UK, which have been hardest hit by the global economic crisis.

Grieve says sales may be slipping a bit now as people hold off on conspicuous consumption and rewarding themselves because this does not seem appropriate when some people are losing their jobs.

However, he says “love never fades away” so even if people tone down their consumption, they will still celebrate anniversaries, get engaged and get married.

Chris Gilmour, an analyst at Absa Investments, says that while people may still be getting married, making some items more of a necessity than a “nice-to-have”, the top-end luxury market will feel be feeling the pinch.

At first the luxury goods market seemed to be resisting the global recession, but then it quickly came under pressure, says Gilmour. “As recently as six to nine months ago, the top-end luxury stores were pumping.”

“At the time, it seemed that they were impervious. But, you need to draw a distinction between real wealth and want-to-be wealth.”

Gilmour says really wealthy people have been mostly protected from the economic downturn, despite a volatile stock market. However, people who have just arrived and want to display their wealth have been more affected, especially those splurging on credit.

Gert van den Berg, owner of the Fourways Hästens store, says the company has seen increased sales since the store opened last January.

Hästens retails hand-made luxury beds. A single bed at the bottom end of the range sells for about R20000.

Each bed is custom made in Sweden out of natural material, and is shipped to SA eight weeks after the order is made.

Van den Berg says their products enhance quality of life and, as a result, people are more willing to spend on them. Customers have not gone for entry-level beds, but have rather bought at the top end where prices can reach up to R500000, he says.

David Donde, co-owner of Origin Coffee Roasting says while “conspicuous consumption is frowned upon in these times of economic gloom, we have all been well-groomed by decades of decadence to enjoy the finer things in life”.

“Showing off your new bespoke Ferrari will have you muttering to yourself, alone in the corner, considered a little creepy,” says Donde.

But, while the two-martini-long lunch is a thing of the past, coffee shop hobnobbing is still in, and a much cheaper indulgence, says Donde.

“A great cup of coffee, being seen, looking cool and being sociable. A second brown note will buy you a takeaway with appropriate branding so that your good taste is noticed back at the office, feels just like the past decades indulgence doesn't it?”

There are warnings on the horizon though, says Donde, citing the closure of three Vida-e Cafe shops in Cape Town following a scuffle between franchisee and franchisor over unrealised profit expectations.

“A new BMW and a staff party at The Roundhouse may be uncool in front of the soon to be retrenched staff, but a round of lattes remains cool. Make mine a double flat white, no sugar please,” says Donde.

Jeweller NWJ is benefiting from people buying down, says Taste Holdings CEO Carlo Gonzaga. The chain is the fourth largest in SA and has 76 outlets.

Gonzaga says there has been a move to the value-driven chain from more upmarket outlets and people are moving to lighter weight gold, silver and stainless steel jewellery.

He says many of NWJ's competitors are on sale, and value is king in this market segment.

Source: Business Day

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