Future not too bright for luxury fashion brands

The Nation

Things look tough this year for the luxury fashion industry with the purchasing power of both high-income earners and tourists having plunged dramatically in the last quarter of 2008.

Orand Puipunthavong, vice president of PP Group, an importer of luxury fashion goods, said his firm's sales revenue had dropped significantly since September. Normally the fourth quarter is considered the peak season for luxury fashion, but last year was the first time the industry had witnessed a decline as significant as 11 per cent year on year.

PP Group is the exclusive distributor of top Italian clothing brand Emilio Pucci, Spanish leather-goods maker Loewe, Mandarina Duck bags and Vabene watches.

Orand said shoppers had all

but disappeared due to the finan-cial crisis, which had also had a direct impact on the Thai stock market.

"Many people have less money

in their wallets due to the sharp decline in the stock index caused

by the global financial crisis

with foreign investors pulling out of the local capital market," he explained.

Meanwhile the number of incoming tourists has dropped sharply due to fears of fallout from political turbulence as well as the global financial crunch.

"The frequency of shoppers

in the last quarter declined by 10

to 15 per cent compared to the

same period in 2007, bringing sales revenue in the fourth quarter last year significantly down from the corresponding period in the previous year. Our revenue from luxury items is estimated to have increased by only 20 per cent last year, which is lower than the annual average of 30 per cent posted previously," he said.

Orand said that 2009 would be a tough year for the industry but it could also be seen as a challenge. The company has to find the right marketing plan to maintain its revenues. PP Group has already outlined three strategies: creating VIP programmes for loyal clients; building brand awareness of Emilio Pucci and Loewe and keeping operating costs low.

He said the group was not planning to import new brands or add new shops this year.

Meanwhile MBP Leather Industries did not reach its sales target either last year, due mainly to political uncertainty. MBP is the manufacturer of high-end men's products, including Albedo briefcases, bags, wallets and luggage.

MBP managing director David Chiu said the company had been missing its sales target since August and did not expect figures for the last two months of 2008 to be any different.

"I earlier target-

ed sales revenue last year to increase by 10 per cent from the previous year. In the first 10 months, however, our actual sales showed a growth of less than 5 per cent," he said.

Chiu said the domestic market had mostly been affect-

ed by the country's political uncertainty, leaving consumers, even the high-income sort, uninterested in shopping. In addition, he said, the global financial crisis is bound to hit the

company harder this year.

However, he said, MBP was preparing by planning to tap new markets, particularly in the Middle East, as well as looking for ways to save operating costs, such as doing away with overtime.

"Since the domestic market is get-

ting worse we have

to offset the drop in sales by seeking new markets overseas," he said.

But it's not all

bad news: Sriracha Moda, the manufacturer of Karissa crocodile-leather products, enjoyed an increase in sales revenue last year.

Managing director Kamthorn Temsiripong said the company's sales in the first 10 months of last year had grown by 20 per cent

compared with the same period of 2007, higher than its average annual growth of 10 per cent. Sales outside Thailand showed the same increase.

Kamthorn said he believed the local market showed positive signs as high-end consumers were spending more because they had suppressed their shopping habits in 2007. Besides, he said, economic crises usually have only a slight impact on the luxury fashion industry.

In addition, the company has entered new export markets, such as China and Russia, both of which showed earnings that had doubled from last year's Bt500,000 per month to Bt1 million in the first 10 months of the year. However, major export destinations like Japan and Europe showed zero growth last year.

"We did well in China and Russia because they have not been affected by the financial crisis. People in both those countries have high purchasing power, and if things go this well, we may consider opening our own shop in either China or Russia next year," he said.

Though sales so far this year are still looking good, Kamthorn said the company would focus on controlling gross profit margins for a better outcome.

Sriracha Moda is expanding locally by opening a new branch in Pattaya. It already has two shops in Bangkok.