Luxury’s Falling Starts

15-Mar-2011

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The stars have aligned for the luxury industry since the global recovery began. But the earthquake in Japan is a reminder of how quickly tragedy can change the industry’s prospects.

Japanese investors dumped stocks Monday in response to Friday’s earthquake, with the Nikkei 225 tumbling 6%. While the U.S. stock market fell just a fraction of that amount, luxury highfliers came under fire. Tiffany, which trades at 18 times this year’s consensus earnings, fell 5%. Coach and Burberry Group of the U.K. fell by similar amounts.

[LUXHERD]

Luxury investors have learned to pay less attention to Japan in recent years. Once vital, Japan accounted for 19% of Tiffany’s sales in 2009, compared with 28% in 2000. Over that time, Japan’s economy has barely grown and was eclipsed by a surge in wealth among its Asian neighbors. Recent monetary stimulus in the U.S. has also led to a rebound in domestic U.S. luxury spending, which accounts for about half of Tiffany’s total.

History suggests that major upheavals such as that being experienced by Japan can mean a sharp decline in consumer confidence. Take the Sept. 11, 2001 attacks on the U.S. In the early months of 2001, sales at Tiffany’s U.S. stores open at least a year fell by a mid-single-digit percentage. But in the quarter that included the terrorist attacks, they plunged 19%.

In addition to Tiffany, the likes of Coach and Hermes International also generate about a fifth of their sales in the country. After a huge share-price run over the past two years, the Japanese disaster is good reason for a reality check.

 

source:http://online.wsj.com/article/SB10001424052748704893604576200953841180960.html?mod=WSJ_newsreel_markets

 

 


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