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Experts Predict Sharp Decline in Luxury Market During First Half of 2009



As economists debate when global markets will start to recover, consumers are buying less high-priced items and the luxury sector is predicted to decline by 10 percent, this year.

Nick Debnam says it is like this: When money is tight, people buy fewer non-essential items, like pricey watches, expensive shoes and designer handbags.

"Around the world, when you hit a recession or a downturn, that is one of the first things that goes off the shopping list," he noted. "So maybe you will delay spending or you would not buy two bags, you will buy one. So it is [the luxury market] bound to come down."

Debnam studies China's consumer markets for KPMG.

Consumers are cutting back

With American economist Nouriel Roubini and others predicting more financial shocks to come, consumers, worldwide, have cut back on buying discretionary items, like diamonds, perfume and hand-made leather goods.

Global consulting firm Bain and Company says the luxury market was once thought immune from the ebbs and flows of economic fluctuations.

But, now, Bain and Company predicts luxury markets will decline 10 percent in 2009, compared to 2008. The firm updated its October study, which predicted a seven percent drop.

Will luxury market stabilize?

The luxury market is expected to to shrink to $198 billion this year, compared to $220 billion last year, with the biggest declines, up to 20 percent, coming in the first half.

But Bain and Company says luxury markets should begin to stabilize by the second half of the year.

The company estimates a 15 percent drops in the Americas and 10 percent declines in Europe and Japan, which account for more than 80 percent of worldwide luxury good sales.

Worldwide, sales of luxury apparel, jewelry, watches, leather goods, shoes and accessories are expected to decline by 10 percent or more, compared to last year.

But sales of luxury cosmetics and fragrances are expected to be similar to 2008 levels.


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