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Luxury scrambles for a rebound

By Judy Martel · Bankrate.com
Tuesday, June 12, 2012
Posted: 6 pm ET

The global wealth boom produced an appetite for luxury products across all upper-income levels that went unchecked until the economy began slumping in 2008. Although stocks like Louis Vuitton, Hermes and Gucci showed healthy profits the first quarter of the year, the market as a whole is far from its pre-recession levels. Even the companies reporting strong sales are cautious in their forecasts. Hermes, which enjoyed 17 percent growth in Europe in the first quarter, has lowered its overall expectations for the year to 11 percent.

The luxury companies that weathered the recession best kept their products exclusive and expensive, appealing to the wealthiest and most discerning buyers. Those companies catering to the less wealthy, or those who aspired to look wealthy, suffered from a pullback in spending in the U.S.

Europeans, who traditionally made up a solid faction of luxury buyers, are grappling with their own economic woes. Sales growth has been strong in Asia, but buyers there have become more fickle, seeking to spend their dollars on items that are harder to obtain and therefore more expensive. Louis Vuitton and Gucci are out, Chanel is in.

As the wealthy get wealthier, their particular tastes will rule the luxury market. Further complicating matters for the luxury-product companies, the ultrarich are diverting some of their spending money toward high-priced adventure, according to a report from the Boston Consulting Group.

With a shifting and shrinking market, producers of luxury products are dreaming up new ways to capture the small segment of buyers who still seek status items. One strategy, according to CNBC, has companies joining together to mine each other's customer marketing lists -- Mercedes and men's clothing brand Brioni, for example. They're also opening fewer stores, raising prices and trying to create an urgency to own.

Do you think a pullback in luxury spending will affect the overall economy?

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