Accessories market sizzles31 May 2004
It is not just status, ego and backing fashion trends that are sparking the $13 billion global luxury leathergoods and accessories market. The likes of Louis Vuitton and Coach Inc are making it red hot. Lew Frankfort, who wheeled Coach into the high end handbag market, was ranked seventh in Business Week's recent list of America's twenty highest paid chief executive officers. Louis Vuitton's parent, LVMH, increased earnings by 30% in 2003, much of it thanks to Louis Vuitton's operating margin - an amazing 45%. Average margins in the luxury business run at about 25%. Investors like these figures and helped double LVMH's share price in one year on the Paris Bourse. Nor is it all just brand identity and customer loyalty. Louis Vuitton employ brutal managerial and financial discipline to help them outpace higher-priced but less productive rivals. It is no secret in business circles that Coach covet the Louis Vuitton throne. Coach had handbag and accessories sales of $1.3 billion in 2003, peanuts compared with Louis Vuitton's $3.8 billion global takings, but Coach's sales are growing at four times the rate of this rival. Coach have a 30% operating margin and the stock has risen 900% since the firm went public in 2000. No other US luxury brand has thus far challenged Euro supremacy in high-end leather accessories. Luxury goods makers always run the risk of relying on one prosperous market. But agile global competitors will redefine cult status with their own branded retail outlets in countries with a fledgling elite. Indian and Chinese entrepreneurs, for example, already prefer luxury brands to generic essentials.