Makers of luxury goods are hit by effects of quake

Japan, which represents 11 per cent of global luxury sales, had been on the mend but Friday’s earthquake and fears of nuclear pollution are expected to harm its economy and severely hamper discretionary spending, analysts said.

“The luxury goods sector could be badly impacted short-term after the Japanese earthquake last Friday,” said MF Global.

“As far as the European consumer sector is concerned in the wake of the earthquake, we believe that the ‘early cycle’ recovery rally in luxury now seems vulnerable.”

On the other hand, other analysts noted that the zones aff ected by the earthquake were not ones where luxury goods makers had major outlets, and estimated that between 10 to 20 per cent of Japanese luxury buyers make their purchases abroad.

Japan as a country is just ahead or about the same size in terms of luxury sales now as China, and ranks just behind the United States as the world’s top buyer of luxury goods.

But as nationalities go, the Japanese are still the world’s biggest buyers of luxury goods when combining purchases at home and abroad, followed by US citizens and the Chinese.

Japan makes up around 19 per cent of sales for Hermes, 9 per cent for LVMH, 16 per cent for PPR’s Luxury Business Group, which owns Gucci and Yves Saint Laurent, and 12 per cent for Switzerland’s Richemont group. Meanwhile, shares in Finnish fashion house Marimekko fell 3.6 per cent after the catastrophe in Japan, its biggest export market.

“Basically, Japan generates about seven per cent of their revenue, so it is natural that the shares are down a bit,” said Helsinki-based Evli analyst Antti Koskivuori.

“However, a more negative for the luxury goods companies would be if the nuclear accident burdened the general global mood.

“Luxury sales depend on the people’s confidence,” Swiss asset manager Sarasin said in a note.

Meanwhile, gold rose in Europe yesterday, recovering some of last week’s one per cent losses, as the impact of the earthquake in Japan added to upward pressure on the metal, driving prices towards recent record highs.

Spot gold was bid at $1,427.51 an ounce against $1,417.70 late in New York on Friday, within sight of the record $1,444.40 it hit last week.

“Japan is another risk element in a plethora of events which have been important in the minds of investors in the past quarter,” said Deutsche Bank analyst Daniel Brebner.

“You have the Middle East/North Africa situation, the peripheral euro zone debt issues which seem to be re-emerging, there are questions with respect to China raising interest rates near term, and there are municipal issues in the United States, particularly on debt.

“This is all creating an environment where there appears to be support for precious metals, and gold in particular.”