While the luxury industry has not been as hard hit as most enterprises, the crisis has had it's impact. Some luxury goods manufactures have spotted the opportunity to slug it out by not reducing their skilled labor force but freezing hiring in most other areas.
Luxury buyers in Russia and Eastern Europe have been the hardest to drive to the stores, yet declines in most segments have only been in the order of 10-15% in the region. According to CPP Management Consultants, the period February-May showed the decreases in key areas being as low as 5%. Asia has held steady. In fact, analysts believe most of the growth ahead will come from the BRIC countries (Brazil, Russia, India and China). According to Bain and Co. Brazil and China will be the two fastest growing markets through 2010.
So as the luxury market treads water, manufacturers face a dilemma. Their most precious resources are designers and craftsmen, on whom they depend to design and craft their high margin, Made-in-France and Made-in-Italy products. As the CEO of a luxury goods manufacturer, do you decided to cut expenditure like most companies do during crisis times and risk depleting the very resource you have spent years building up? Designers with the right touch, taste and target-market-empathy are hard to find, and the artisans crafting the goods often take years to learn the trade.
It is doubtful that Brazil and China will provide enough growth to offset the declines in Eastern Europe and Russia during the next 24 months, so luxury companies face pressure from shareholders who are increasingly allergic to companies that do not take decisive measures to cut cost during crisis times.
I believe the hardest hit will be the mid-sized, public luxury goods companies, who don't have the resources, geographic coverage or multi-brand focus to sustain themselves though the crisis. Larger, multi-brand groups like Richemont, Hermes, LVMH and PPR can seek cover through managing dozens of brands each and though already being well established throughout the BRIC countries.
The multi-brand groups seem to be adopting a strategy of holding onto their designers and artisans, betting on retaining capacity for when the crisis is over. "We currently have a hiring freeze, except for craftsmen and new store employees," Hermes Chief Executive Patrick Thomas told the Reuters Global Luxury Summit in Paris in May. Hermes Group grew 1H/09 revenues to €875 million up from €813 million during the same period in 2008, mainly caused by growth in leathergoods offsetting declines in most other categories. In fact, this year alone Hermes will start training 50-100 new craftsmen to gear up ahead of the competition for when the crisis starts blowing over.
Some smaller manufacturers are seeing the opportunity. Swiss watchmaker Parmigiani Fleurier, who makes watches averaging $45,000, emphasizes the difficulty in recruiting new staff to join their 600-strong Swiss-based craftsmen team. To Reuters, Chief Executive Jean-Marc Jacot said: "The young generation are not keen to work with their hands. They prefer to work with the laptop!"
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