CASE STUDY ANALYSIS

ECO740: ECONOMIC ANALYSIS

Luxury goods: no sign of slowing
If youve got it, flaunt it tastefully, of course. From the Medicis to Marie-ntoinette, that
age-old human trait has sustained small armies of !uality manufacturers. In the "#st
century, it may $e sias %angs and &atos. 'he im(ortant !uestion is whether or when
todays chilly economic climate may infect this cushioned elite and cause them, too, to
rein in s(ending. )udging $y recent num$ers from a cou(le of to(-end manufacturers, it
will not $e this year. *ichemont, the &wiss ma+er of ,artier -ewellery and .aume /
Mercier watches, shrugged off the (ro$lems (osed $y a strong &wiss franc and
(roduced a "0 (er cent sales increase 1or 23 (er cent at constant exchange rates4 in the
six months to &e(tem$er. Italian leather s(ecialist 'ods strode to #5 (er cent in the first
nine months of "6##.
7f course, $oth com(anies can than+ the swelling ran+s of wealthy ,hinese: mainland
,hina led the sales charge. .ut 8& revenue growth was also in the strong dou$le-digits,
and in *ichemonts case even disaster-struc+ )a(an, the luxury industrys num$er two
mar+et, cloc+ed u( 0 (er cent. 9ext year may $e tougher *ichemonts chairman
)ohann *u(ert is vague, $ut cautious and com(arisons will $e more difficult. .ut
shifting distri$ution (atterns, and the recent growth in directly owned retail outlets, which
now account for almost a third of luxury sales worldwide, give high-end manufacturers
more control over their destiny, .ain / ,o notes.
For investors, the com(anies shares are no chea(er than their (roducts. *ichemonts
have tri(led from their "660 lows, and now trade at #: times "6## forecast earnings.
'hat is chea( relative to .ur$erry or ;rada, which loo+ decidedly stretched on multi(les
of more than "6 times. *ichemont also has net cash of <".3$n. Investors can $e relieved
that the com(any, unli+e its customers, is in no hurry to s(end it.
da(ted from Financial 'imes, 9ovem$er #2, "6## ::=3 (m
Discussion questions:
a4 .ased on the article, ex(lain the reasons why there are no signs for the sales of
luxury goods to slow down 1= mar+s4.
$4 8sing a diagrammatical analysis, show the effect of the situation descri$ed in the
article, on the e!uili$rium (rice and !uantity in the mar+et for luxury goods 1>
mar+s4.
c4 'he article illustrates a situation that contradicts the standard demand theory.
?x(lain what situation this is 13 mar+s4.
d4 @iscuss, with exam(les, the com(etitive strategies that can $e underta+en $y
*ichemont to sustain its (rofita$ility in the luxury goods mar+et 1#" mar+s4.