Years of record growth for handbag sales could be over
By Cotten Timberlake Bloomberg News
NEW YORK: The $7 billion market in the United States for handbags, the fastest-growing product in the fashion industry, might be slowing from the record growth seen in recent years. Some analysts and retailers say that the increases in U.S. handbag sales may have peaked, as competition from other accessories like shoes and jewelry heats up and as higher gasoline and mortgage costs slows consumer spending. The sales increases that reached as high as 28 percent in 2004, the strongest annual pace on record, could fall back to as little as 15 percent this year, with no signs of recovering before 2009, according to the Telsey Advisory Group, a stock research firm in New York.
The firm was founded by Dana Telsey, a retail industry analyst who was ranked the top speciality stores analyst by Institutional Investor magazine every year in the seven years to 2005. Stephen Sadove, chief executive of Saks, said the handbag's status as a must-have item is being challenged. "It used to be all about the shoes and our woman had so many shoes in her closet, then it became the multiplicity of handbags," Sadove told investors at a Goldman Sachs conference in September. "What you are seeing now is a new trend, which is branded designer fine jewelry."
Handbag makers, led by Coach and Louis Vuitton, are vying for the attention of affluent consumers, who are turning their attention to items like Tory Burch ballet flats and David Yurman bracelets, retail executives said. "The handbag business has softened up a little bit," said Kathryn Deane, president of Tobe, a fashion consulting firm in New York whose clients have included Macy's, Bloomingdale's, Nordstrom and Neiman Marcus. "When the consumer looks at accessories, she is not just looking at handbags anymore."
U.S. sales of handbags costing at least $100 could expand 20 percent this year, compared with a 22 percent increase last year, according to research from Coach, a maker of handbags and other accessories in New York. Coach and Telsey began providing sales data on handbags in 2001, after demand began to soar in the late 1990s. Patricia Edwards, who helps manage investments including Coach shares at Wentworth, Hauser & Violich in Seattle, said, "Slower growth in the handbag segment overall is a prudent outlook given the economic situation we find ourselves in right now."
Coach, whose handbags sell for $200 to $400, expects overall revenue, which also includes jewelry, shoes and fragrances, to rise 21 percent in the year through June 28, 2008, said its chief financial officer, Michael Devine, at an analyst meeting at the company's headquarters in New York in September. In the year that ended in June, the company recorded a 28 percent rise, with handbags accounting for 64 percent of Coach's sales.
Sales at Coach stores in North America that have been open at least a year will rise "north of 10 percent," Devine said. His guidance is similar to what the company has said in previous years. In the year that ended in June, those sales rose 22 percent. Coach is introducing three handbag lines this year. The retailer will need popular new products and a more buoyant economy to sustain the revenue gains of recent years, said Edwards, at Wentworth Howard.
"The growth further out might be more problematic unless they have a fabulous product line coincidental with better economic news," Edwards said. While sales gains may be slowing, handbags are still leading the growth in the U.S. fashion industry, ahead of earrings, wallets and other small leather goods, according to NPD Group, a market research firm in Port Washington, New York. Coach shares have risen 8.6 percent this year through Monday, outpacing the 7.7 percent climb for LVMH stock and the 1.5 percent decline for the Standard & Poor's 500 index of 29 U.S. retailers
Louis Vuitton has found that "growth in the U.S. luxury market segment continues to accelerate on an annual basis," said Molly Morse, a spokeswoman for the company. She declined to provide more detailed figures, and Louis Vuitton does not provide revenue figures for its various divisions.
John Guy, an analyst at MF Global Securities in London, estimated that sales of fashion and leather goods at LVMH Moët Hennessy Louis Vuitton, the parent company of Louis Vuitton, could slow from the 11 percent growth recorded in 2006. At Prada, based in Milan, "we are growing the handbag business at a faster pace compared to other product categories," said a spokesman, Tomaso Galli, who declined to give specific figures. "We plan to continue to do so going forward." Prada and Gucci, owned by PPR, declined to provide sales forecasts.
A Goldman Sachs survey of 1,550 U.S. consumers that was released in June found that 32 percent expected to buy fewer handbags this year. About 18 percent said they would buy more, and 51 percent said they planned to purchase the same number. A survey of 1,491 people in May by WSL Strategic Retail, a consulting firm in New York, showed that 43 percent of women respondents were reducing personal spending because of higher gasoline prices. Of those, 73 percent said they would cut back on fashion accessories, said Wendy Liebmann, the president of WSL.
In a WSL survey carried out six months earlier, 32 percent were cutting back on spending, and 62 percent identified fashion accessories, a category that can include purses, jewelry, belts and scarves, as an area to rein in purchases. "That's what makes us nervous, the 11-point increase in the number," Liebmann said. Her firm's clients include Saks, Target and J.C. Penney.
For premium handbags, which sell for at least $300 and represent 80 percent of the U.S. market, price growth was 14 percent in 2006, the same rate of growth for the entire handbag market, according to Telsey Advisory. Cristin Murphy, who lives in Aliso Veijo, California, illustrates the overall market trend. She said her spending on bags peaked in 2003, leaving her with a handbag wardrobe that included five Coach, two Prada, a Burberry, and a Kate Spade. "I have kind of made my investment in handbags," Murphy said. "So I do not necessarily need to go out and buy a bag today."
NEW YORK: The $7 billion market in the United States for handbags, the fastest-growing product in the fashion industry, might be slowing from the record growth seen in recent years. Some analysts and retailers say that the increases in U.S. handbag sales may have peaked, as competition from other accessories like shoes and jewelry heats up and as higher gasoline and mortgage costs slows consumer spending. The sales increases that reached as high as 28 percent in 2004, the strongest annual pace on record, could fall back to as little as 15 percent this year, with no signs of recovering before 2009, according to the Telsey Advisory Group, a stock research firm in New York.
The firm was founded by Dana Telsey, a retail industry analyst who was ranked the top speciality stores analyst by Institutional Investor magazine every year in the seven years to 2005. Stephen Sadove, chief executive of Saks, said the handbag's status as a must-have item is being challenged. "It used to be all about the shoes and our woman had so many shoes in her closet, then it became the multiplicity of handbags," Sadove told investors at a Goldman Sachs conference in September. "What you are seeing now is a new trend, which is branded designer fine jewelry."
Handbag makers, led by Coach and Louis Vuitton, are vying for the attention of affluent consumers, who are turning their attention to items like Tory Burch ballet flats and David Yurman bracelets, retail executives said. "The handbag business has softened up a little bit," said Kathryn Deane, president of Tobe, a fashion consulting firm in New York whose clients have included Macy's, Bloomingdale's, Nordstrom and Neiman Marcus. "When the consumer looks at accessories, she is not just looking at handbags anymore."
U.S. sales of handbags costing at least $100 could expand 20 percent this year, compared with a 22 percent increase last year, according to research from Coach, a maker of handbags and other accessories in New York. Coach and Telsey began providing sales data on handbags in 2001, after demand began to soar in the late 1990s. Patricia Edwards, who helps manage investments including Coach shares at Wentworth, Hauser & Violich in Seattle, said, "Slower growth in the handbag segment overall is a prudent outlook given the economic situation we find ourselves in right now."
Coach, whose handbags sell for $200 to $400, expects overall revenue, which also includes jewelry, shoes and fragrances, to rise 21 percent in the year through June 28, 2008, said its chief financial officer, Michael Devine, at an analyst meeting at the company's headquarters in New York in September. In the year that ended in June, the company recorded a 28 percent rise, with handbags accounting for 64 percent of Coach's sales.
Sales at Coach stores in North America that have been open at least a year will rise "north of 10 percent," Devine said. His guidance is similar to what the company has said in previous years. In the year that ended in June, those sales rose 22 percent. Coach is introducing three handbag lines this year. The retailer will need popular new products and a more buoyant economy to sustain the revenue gains of recent years, said Edwards, at Wentworth Howard.
"The growth further out might be more problematic unless they have a fabulous product line coincidental with better economic news," Edwards said. While sales gains may be slowing, handbags are still leading the growth in the U.S. fashion industry, ahead of earrings, wallets and other small leather goods, according to NPD Group, a market research firm in Port Washington, New York. Coach shares have risen 8.6 percent this year through Monday, outpacing the 7.7 percent climb for LVMH stock and the 1.5 percent decline for the Standard & Poor's 500 index of 29 U.S. retailers
Louis Vuitton has found that "growth in the U.S. luxury market segment continues to accelerate on an annual basis," said Molly Morse, a spokeswoman for the company. She declined to provide more detailed figures, and Louis Vuitton does not provide revenue figures for its various divisions.
John Guy, an analyst at MF Global Securities in London, estimated that sales of fashion and leather goods at LVMH Moët Hennessy Louis Vuitton, the parent company of Louis Vuitton, could slow from the 11 percent growth recorded in 2006. At Prada, based in Milan, "we are growing the handbag business at a faster pace compared to other product categories," said a spokesman, Tomaso Galli, who declined to give specific figures. "We plan to continue to do so going forward." Prada and Gucci, owned by PPR, declined to provide sales forecasts.
A Goldman Sachs survey of 1,550 U.S. consumers that was released in June found that 32 percent expected to buy fewer handbags this year. About 18 percent said they would buy more, and 51 percent said they planned to purchase the same number. A survey of 1,491 people in May by WSL Strategic Retail, a consulting firm in New York, showed that 43 percent of women respondents were reducing personal spending because of higher gasoline prices. Of those, 73 percent said they would cut back on fashion accessories, said Wendy Liebmann, the president of WSL.
In a WSL survey carried out six months earlier, 32 percent were cutting back on spending, and 62 percent identified fashion accessories, a category that can include purses, jewelry, belts and scarves, as an area to rein in purchases. "That's what makes us nervous, the 11-point increase in the number," Liebmann said. Her firm's clients include Saks, Target and J.C. Penney.
For premium handbags, which sell for at least $300 and represent 80 percent of the U.S. market, price growth was 14 percent in 2006, the same rate of growth for the entire handbag market, according to Telsey Advisory. Cristin Murphy, who lives in Aliso Veijo, California, illustrates the overall market trend. She said her spending on bags peaked in 2003, leaving her with a handbag wardrobe that included five Coach, two Prada, a Burberry, and a Kate Spade. "I have kind of made my investment in handbags," Murphy said. "So I do not necessarily need to go out and buy a bag today."
Labels: burberry, coach, designer handbags, gucci, handbags, kate spade, melie bianco handbags, prada
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