High Times for the High End

The state of the luxury market in today's global economic climate was spotlighted repeatedly at BaselWorld 2008 by show officials, exhibitors, and speakers, and their conclusion was—it's in good shape, even in the weak U.S. economy.

“The sub-prime crisis will last for some time, with implications for our business [and] further complex problems in its wake,” said Jacques J. Duchêne, president of the show exhibitors' committee, at the annual preshow press conference. In America, specifically, “we can expect difficulties.”

There already have been slowdowns there in some categories, noted other show and exhibitor group officials. Italian jewelry imports to the United States, for example, declined in 2007, while increasing in all other major markets, and François Thiébaud, president of the Swiss exhibitors committee, expressed concern about erosion in the U.S. market.

Leaders of the Israeli and Belgian diamond industries said a weakened U.S. economy is an issue they must deal with. “There already was concern [in mid-2007] about the situation in the United States,” said Freddy J. Hanard, chief executive officer of the Antwerp World Diamond Centre. At the Israeli Diamond Industry's annual press breakfast, Eli Avidar, managing director of the IDI Group, cited 2007's “considerable upheaval” in the world diamond industry. “Scarcity of rough diamonds, the sluggish American economy, and other factors have forced diamond industries all over the world to rethink their basic structures and transform their work methods,” he said.

There's general agreement, however, that despite problems, the luxury market continues to thrive. The Swiss watch industry's 2007 exports, for example, were its best in 18 years (up 16 percent in value, and 50 percent since 2004), and business keeps growing, especially in Asia.

In diamonds, 2007's total turnover for the Antwerp, Belgium, diamond sector—including imports and exports of both rough and polished diamonds—topped $42 billion, the most yet by any diamond trading center, said Hanard at BaselWorld. “The incredibly strong turnover … underscores the robustness of the diamond business,” he said. “Over the long term, we have an industry extremely optimistic about its future.”

Israel's diamond industry also enjoyed a successful 2007. Despite “global financial conditions, many transitions, and challenges, we've realized our strategic plans and even expanded them,” said Avidar, citing as proof Israel's record $7 billion–plus in net polished diamond exports. He also noted IDI's cultivation of new luxury markets—China in 2007 (a new Hong Kong office, participation in Chinese trade shows, and a new Chinese language Web site) and India this year. In both, IDI is working to “educate consumers to buy more diamonds.”

Even in the U.S. economy, the luxury watch and jewelry market thrives, said David Arnold, senior vice president and group publisher of CurtCo Robb Media LLC, whose magazines target affluent readers, speaking at the annual GemFest Basel of the Gemological Institute of America.

Wealth is growing worldwide, he noted. Two out of five of the globe's 1,125 billionaires are in the United States, which also has 9 million millionaires and almost 2 million affluent households. Arnold's “Perceptions of Wealth vs. Reality,” about high-net-worth individuals and psychographic factors shaping their buying, showed how public—and retailers'—assumptions about the affluent often differ from fact.

“Most of today's wealthy are first generation (over 90 percent), not inheritors. They grew up middle class (and remain so at heart) and worked hard for their wealth,” Arnold said. Few show off their wealth to impress others, but they “enjoy their wealth. They don't hide it in a mattress nor defer buying” because of the economy. One in four enjoys spending on watches and jewelry (8 percent on very expensive ones), and they appreciate one-of-a-kind, limited editions.

“They make purchases based on value, not hype, and want a unique, highly personal, customized [buying] experience,” Arnold said. “Develop a relationship with those in your market. They can become the best advocates for your store, with person-to-person recommendations, which are extremely important in the luxury marketplace.”