U.S. Luxury Brands Take A Pregnant Pause When Looking At European Expansion - 8/6/10

U.S. Luxury brands are thinking twice about expanding into Europe in the foreseeable future due to the threat of the European debt crisis and the uncertainty in global financial markets. Many American brands looked to the rest of the world during the height of the U.S. recession as brand recognition and a weak U.S. dollar made their goods more desirable. Currently, luxury brands are stepping carefully as they face a deep fear that Greece will poison its neighbours and contribute to lower demand for luxury goods.

It is true that a weaker Euro will make the entry of U.S. retailers into Europe more favourable from a cost viewpoint, however a weaker Euro has a negative effect on sales. Chief Executive, Alex Bolen from Oscar de la Renta said that “Rich Europeans are cutting back on splurges. There are some places in international markets where business, not just for Oscar de la Renta, but for luxury brands has really come to a halt.” The Luxury Institute’s Milton Pedraza supports that “(growth) has been cut off. So I think Europe is a problem.”

Some brands are using the stronger Dollar to their best advantage by reconstituting their price strategies. Coach recently reported that it would expand into Spain, Portugal and the Britain. Planning to get more “bang for their buck”, Coach’s Chief Executive Lew Frankfort said that "the timing could not be better than when the economies are weak." Following a similar strategy, Oscar de la Renta is looking to expand into London sometime soon, taking advantage of the weaker Pound.

Bolen reported that “for a firm like ours that is principally a Dollar-denominated firm, things have become more affordable in London." Bolen explained that the luxury house was considering Paris, the capital of luxury, but high rents “are still really tough”. We think that the strong and persistent inbound tourist traffic into Paris exceeding 45 million per year (compared to 15 million into London) and the concentration of luxury houses make the cost premium easier to digest. If the debt crisis in Greece spreads to Western Europe, Bolen admits that his comments “probably won’t be proven true”. As always, we will watch in anticipation to see which (if any) U.S. brands will brave the conditions and take a ‘big risk’ that may possibly yield a ‘big return’.

Image Credit: http://uk.reuters.com/

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