Pundits talk tough times at Luxury Days

Newsroom 16/03/2009 | 15:08

While last year there were in total 130 participants over a single day, during this edition organizers expect 100 participants a day, so approximately 200 in total.

“Since this is an annual event, we try to allot it a budget, but this year the crisis messed up our plans a bit in the sense that we had to invest directly (30 percent more than during the previous year),” says Petcu.

According to organizers, the idea to alter the concept of the event and organize it over two consecutive days means they will have more time at their disposal.

Most of the presentations that will be delivered are centered on how to tackle the crisis and what changes in approach are necessary in this context. Which means that Luxury Days makes for a very good opportunity for pundits in this domain to put all their cards on the table and discuss matters thoroughly.

What do they have to fear? From what Oliver Petcu, managing director of CPP Management Consultants Ltd., tells Business Review, they may be confronted with falls of as much as 20 percent in some areas of the industry. “This is going to be a year of re-shuffling for the luxury industry, both on emerging markets and on developed ones,” he says. As far as the Eastern European luxury market goes, there will be countries such as Bulgaria, Hungary and the Czech Republic that will bear the brunt, “with drops of up to 30 percent on all the segments of the luxury industry.” Petcu anticipates that in Romania the luxury industry will stagnate and there will be a clear downward trend in some sectors, but with a drop “no greater than 20 percent compared to last year.”

Petcu does not rule out the possibility of some business closures but only in the case of multi-brand firms. In addition to this, there will be lay-offs in the sectors of perfumery, luxury cars and hotels, where up to 10 percent of the current work force will be given their marching orders.

“Although there is no general rule, we could say all players are affected by the stand-by and even depressed state of most consumers of luxury services and products, but each segment has its own challenges to meet. For instance, while in the case of certain multi-brand fashion businesses we will witness lay-offs and salary cuts, franchise businesses will be net recruiters, especially if we take into account the entrances announced in 2010,” says Petcu.

In the 2008 Market Review Study on the Luxury Industry, CPP Management Consultants Ltd. estimate the value of the local luxury sector (which includes fashion, accessories, jewellry, watches, auto and inside decorations/furniture), to exceed EUR 190 million. This evaluation does not include segments like hospitality and cosmetics. “The luxury industry grew by 23 percent during the first nine months of 2008, in comparison to last year. However, by the end of the year it had dropped by 14 percent on all of the luxury industry segments. This trend will be maintained throughout 2009 as well, but there will not be losses greater than 20 percent. CPP sees a slight comeback for the industry starting in November 2009,” according to the study.

In Romania in 2008, there were 13,000 people with an income greater than EUR 1 million per year, most of whom are a target for luxury goods and services. As far as the demand for luxury goods is concerned, Constanta and Iasi are at the top, with most wealthy Romanians preferring luxury branded goods and services. The wealthiest part of the country is Transylvania, with cities like Timisoara, Cluj, Sibiu and Oradea.

“Drops in prices registered in the last three months of the year across all real estate segments, as well as the Bucharest Stock Exchange, have almost cancelled out all growth registered in the first quarters of 2008. Many wealthy people found themselves short of cash, especially those who had invested heavily in real estate and did not sell or rent at the right time. All real estate segments have registered heavy falls during the last three months of 2008. This has led to a halt in furniture and luxury decoration sales. We estimate that drops in these segments are at 30 percent compared with last year.”

Luxury players take more targeted customer approach

Tudor Furir, GM at Pernod Ricard Romania, says the company he heads will continue to invest in the brands it imports but more efficiently and better targeted. “We are not aiming to reshuffle or to do significant cost-cutting. But we will cut those investments that do not bring a relevant return on investment for the company,” he says. Moreover, communication with consumers will become more targeted and efficient. “We will diminish investment in ATL and we will invest more in BTL and trade marketing. We will try to be more creative and find unconventional means of communication,” he said.

The company will also try to avoid putting up prices. The currency exchange has a major impact on the calculation of prices in RON. Already the cost of imported alcoholic drinks has increased by up to 20 percent. “If the RON remains stable at the current level, we will no longer raise prices,” says Furir. In 2008, Pernod Ricard Romania posted a turnover of EUR 30 million and this year it is estimated to reach around EUR 33-35 million.

He estimates the market of luxury alcoholic drinks (meaning those drinks that exceed EUR 40 a bottle) at around EUR 5 million. “I don't think we will see brands withdraw from the market but there will be no new entries in 2009,” he says.

Tatiana Stroescu, marketing & communication manager at Audi, says last year was balanced for the premium car market and estimates that had been made at the end of 2007 regarding the evolution of sales on this segment were realistic. In Romania, Audi was market leader on the premium segment with 2,856 sold cars.

“It is too early to foresee the value of the car market in 2009 because there are very many factors which can influence it either positively or negatively. The support that authorities give to large companies will make a difference and also the way in which this support applies from one case to another,” says Stroescu.

The manager believes that as far as the premium car market is concerned, the behavior of the luxury consumer will be to spend moderately but the purchase decision will be less influenced by external factors compared to the customers of other brands. “Indeed, costs represent at the moment an important aspect in the decision to acquire a premium car but it is not necessarily the main factor,” she says.

Where should investors look?

At this point, it would be an overstatement to say that there are still investors who are “interested” in opportunities on this market. “Unfortunately, in this general atmosphere ruled by panic, mostly created and maintained artificially, there are few experienced entrepreneurs who can realize the potential of certain domains. One of these promising domains is spas,” says Petcu.

However, investors should focus on certain areas. The CPP study mentions, among luxury sectors where major opportunities lie, the spa and travel domains, for several reasons. First of all, “there are no specialized travel agencies in the luxury industry. This sector is full of opportunity, especially when there are already two companies specialized in private flights. There is a growing number of people in Romania who opt for first class travel, be it business or vacation. Business Class tickets bought in Bucharest represent 7 percent of all sales made by the airlines.”

Similarly, the spa segment could be appealing for an investor since it is “the least developed one from all the sectors of the luxury industry. There are many beauty saloons in Bucharest that describe their services as being ‘a spa', but there is still a long way to go before they reach that objective.”

Currently there are no spa services for men. “There are many international brands that have expressed their interest over time to enter the Romanian market. Among these we could mention Molton Brown, Biodroga and Givenchy. E'SPA announced the signing of a contract for project Silver Mountain (Radisson) in Poiana Brasov, but it looks like it is going to be postponed due to the international crisis,” adds Petcu.

However, a project that is underway and very likely to be completed will be the SPA Shiseido that Tiriac Imobiliare will include in the residential project Stejarii. “The company has declared that the project is not being postponed, and it looks like 2009 will see the opening of the first sections for this project.”

In the hospitality industry, investors should look at opening boutique-type or designer-branded hotels. Last but not least, there are still opportunities in fashion: on the womenswear segments these lie in wedding dresses, business suits and formal clothing. In the menswear segment, they lie in shoes, bags and leather accessories.

Otilia Haraga

BR Magazine | Latest Issue

Download PDF: Business Review Magazine April 2024 Issue

The April 2024 issue of Business Review Magazine is now available in digital format, featuring the main cover story titled “Caring for People and for the Planet”. To download the magazine in
Newsroom | 12/04/2024 | 17:28
Advertisement Advertisement
Close ×

We use cookies for keeping our website reliable and secure, personalising content and ads, providing social media features and to analyse how our website is used.

Accept & continue