According to a report from consultants Bain & Co., spending on luxury goods in expected to decline by about 8% in 2009, an improvement from an earlier forecast that called for double digit declines on the year. Previously, Bain had projected a decline of about 10% following a drop of up to 20% in the first half of the year. Among the other highlights of Bain’s report:
- Sales of high-end clothing, accessories, cosmetics, and jewelry in the U.S. market are expected to drop by 16%, making it the hardest hit area
- Luxury good sales in Japan and Europe are projected to decline by 10% and 8%, respectively, in 2009
- Sales of luxury items are projected to rise 10% in Asia, led by an improvement of 12% in China for the year
Luxury good sales are projected to decline by about 1% in the fourth quarter and eke out a gain of 1% next year. The industry isn’t expected to fully recover from the downturn until at least 2011.
The Economy Turns
As is normally the case, the luxury goods industry suffered tremendously during the recent recession as consumers axed big-ticket discretionary purchases from their budgets. Wal-Mart (WMT) and Costco (COST) became favorite shopping destinations for millions of Americans, as purchases of designer clothes and expensive jewelry plummeted. Those who were able to continue spending favored doing so via the Internet to avoid the shame of conspicuous big-item purchases in a struggling economy.
While there are several consumer discretionary ETFs (including those with a global and domestic focus), many of these funds maintain significant holdings in companies like McDonald's (MCD), Comcast (CMCSA), Home Depot (HD), and Nike (NKE) – not exactly luxury brands.
The Claymore/Robb Report Global Luxury Index ETF (ROB) is truly a luxury ETF, investing globally in companies whose primary business is the provision of global luxury goods and services. ROB has significant holdings in Swatch (SWGAF.PK) (5.3%), PPR (PPRUF.PK) (5.2%), Christian Dior (4.7%), Luxottica (LUX) (4.5%), Coach (COH) (4.4%) and Louis Vuitton (LVMHF.PK) (4.4%), names that are prohibitively expensive for most consumers, especially during a sharp economic downturn.
Not surprisingly, ROB saw huge losses over the last two years, but has rebounded since the market bottomed out in March. ROB is up more than 120% since the bear market lows earlier this year. Still, the fund is well below pre-recession levels, leaving plenty of room for further appreciation if this recovery continues to power along and consumers regain their taste for luxury.
Disclosure: No positions at time of writing.