Subject: San Diego News Room placement
From: "Merilee:::Kern Communications" <[email-masked]>
To: "Gilbert Gautereaux" <[email-masked]>, "'Kamran Razavi'" <[email-masked]>, "'Rob Gautereaux'" <[email-masked]>
Cc: <[email-masked]>
Date: Tue, 25 Nov 2008 10:27:26 -0800

http://www.sandiegonewsroom.com/news/index.php?option=com_content&view=article&id=6377:gina-giacopuzzi&catid=46:san-diego-business&Itemid=54

      Demand for some luxury goods remains steady despite economy      
      Business and Finance - San Diego Business  
      BY Gina Giacopuzzi     
      Monday, 24 November 2008 16:16 
     
      How many consumers are still buying the new Dooney & Bourke bag? What about limo service to parties? Ferretti yachts? Bentleys? Global luxury sales are expected to fall as much as 7 percent next year, according to a report by Bain & Company, a global management consulting firm. However, some retailers are finding bright spots in the market. JustLuxe.com, a luxury lifestyle portal based out of San Diego, announced record-breaking third quarter growth and profitability in October, a 141 percent increase over the same period last year.

      The company offers access to a luxury hotel reservation system, articles on high-end goods and services, and travel recommendations, all of which are apparently still in high demand. The company's Web site traffic increased 300 percent over the same period last year and expects record-breaking revenue and traffic growth well into 2009. Gilbert Gautereaux, president of JustLuxe.com, said the travel sections of the site receive the most traffic, followed by luxury boats, cars and planes.

      Part of the reason for this could be Bain's prediction that global spending on luxury-goods products will surge in the next five years, as much as 20 to 35 percent in some emerging markets. While what it calls "accessible" brands, like Ralph Lauren, expect no growth by the end of this year, "absolute" luxury brands like Hermes will still recognize an 8 percent growth this year-down from 10 percent in 2007. James Hurley, managing director of Telsey Advisory Group, recently said on CNBC that the ultra-rich are not "price-sensitive," and the only thing that could hurt luxury-goods sales are factors outside the market, such as geopolitical risks or terrorism. 

      "It depends on the level of affluence," Gautereaux said. "The wealthy-people valued over $5 million-will make some cuts, but the super-wealthy (who have a net worth of over $10 million) will not."

      The foundation of the current economic downturn, the housing market, does not affect top-tier earners because most don't have mortgages, Hurley said. According to Business Week, top luxury home prices were still going up early this year. About one-third of buyers of $1 million-plus homes pay cash, making them less concerned about interest-rate fluctuations and other issues.

      Some sectors of luxury goods struggle more than others, however. According to the New York Times, between Oct. 15 and Nov. 15, luxury hotels slashed their room rates by 5.4 percent while Nordstrom's executives said clothing prices had been lowered by an average 22 percent. Saks reported an 11.5 percent drop in sales this past quarter, compared with a gain of 11.4 percent during the same period last year. The combination of less demand and possible deflation have some retailers trimming their inventories and store openings-Saks is ordering 15 percent less merchandise for spring 2009. Gautereaux said some of the hardest hit businesses are yacht and plane charters.

      Luxury cars are also among the hardest hit sectors. Bentley sales are down 27.9 percent this year, while mass luxury brands like Mercedes Benz and Lexus saw even sharper drop-offs. The worldwide operations manager for Bentley was quoted as saying the drop-off wasn't because customers couldn't afford a Bentley-it was because they didn't want to "create the wrong impression in terms of extravagance and so on."

      According to a recent study by market researching firm Harrison Group, 83 percent of individuals surveyed who were making more than $100,000 a year said they would be able to weather the current economic climate. However, only 50 percent agreed that "a few luxuries are important in tough times." According to the company's chairman, this could be indicative not of an inability to afford certain luxuries, but of a changing definition of "living well."

      However, no sector is across-the-board immune from or victim to the economic downturn. Rolls-Royce's U.S. sales are up 48.8 percent, partly due to the release of their new models, while Lamborghini and Ferrari expect 2008 sales to be on par with last year's. 

      The success of sites like JustLuxe.com and Gilt.com, an invitation-only online version of sample sales, could be that luxury is still important to some but not in the sense that it has been in the past. Companies are scrambling to change their advertising approaches, structuring ads to appeal to customers who don't want to appear flashy but want to maintain their lifestyles. 

      "People need to reach their client in a down economy," said Gautereaux. "They want to target their message"-one possible reason JustLuxe.com has seen a jump in advertising. However, most of the site's advertisers target the super-rich and are "holding their own."

      "It's the middle that's being squeezed," Gautereaux concluded. "Wal-Mart's doing well, too. People are either going up or down."

      It remains to be seen when-or if-the super-rich will feel the effects of the housing market, deflation and stock declines. As long as there are five-star resorts to offer distractions from the current economic news, it seems the demand will remain.