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Appetite for luxury goods stronger than ever

Bags and accessories at the new Burberry store on Bloor St West., Toronto.

Fred Lum/The Globe and Mail

Even as the global economy battles a host of demons, from soaring food and energy costs to earthquakes and geopolitical strife, the long lines at luxury goods retailers show that a growing number of affluent shoppers are back in the mood to spend.

While discount chains such as Wal-Mart are struggling with soft sales and tight-fisted consumers, luxury merchants are doing a booming trade in high-end jewellery, sports cars and leather goods - a trend that is expected to gather momentum thanks to the wealth effect of a rising stock market and the growing ranks of well-heeled shoppers in emerging markets.

The latest beneficiary of the trend to luxury is Tiffany & Co., which on Thursday posted a 25-per-cent jump in first-quarter profit and 20-per-cent gain in revenue, smashing Wall Street's expectations and sending its stock up 8.6 per cent to a record high.

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"In our opinion, Tiffany's first-quarter results were nothing short of outstanding," Mark Aaron, the New York-based jeweller's vice-president of investor relations, said on a conference call with analysts.

The company said sales growth was particularly strong in the Asia-Pacific region, and reported that results in Japan were better than expected after the earthquake and tsunami.

Tiffany, which raised its full-year forecast and last week hiked its dividend, is far from the only merchant cashing in on the growing appetite for high-end baubles and fashion accessories.

British luxury house Burberry Group PLC on Thursday posted a 39-per-cent jump in profit and 27-per-cent gain in revenue. It said it would plow more money into expanding existing stores and opening new ones in fast-growing markets such as Brazil and India.

Contrast those sparkling results with Wal-Mart Stores Inc. , which has posted eight consecutive quarters of declining sales at U.S. stores open for at least a year, as less well-heeled consumers tighten their belts in the face of rising fuel and food costs and an uncertain employment outlook.

Wealthy consumers can afford to shrug off such concerns. What's more, their investment portfolios have surged in value.

"Stocks have come back 80 or 100 per cent off the bottom, so people who own stocks feel better," said David Schick, an analyst at Stifel Nicolaus & Co.

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A few merchants are switching strategies to meet the recovering demand for high-end goods among well-to-do North American shoppers. Saks Fifth Avenue, for example, is stocking more $300 dress shirts after shifting to lower-priced goods during the financial crisis.

Around the world, soaring sales of luxury goods have defied fears that austerity measures in Europe and steps to cool China's sizzling economy would put a damper on spending by affluent consumers.

According to a study this month by Bain & Co., luxury sales totalled €172-billion ($237-billion) in 2010, eclipsing the prerecession peak of €170-billion in 2007. The consulting company predicts sales will rise to €185-billion in 2011, up 8.8 per cent from 2010, paced by growth of 25 per cent in China and 10 per cent or more in Russia, Brazil and the Middle East.

"Luxury has made a brilliant return to the retail stage," said Claudia D'Arpizio, lead author of the study. Among other factors, "the continued growth of China and other fast-growing markets are transforming the luxury industry."

The trend is also transforming investors' wallets.

Shares of Toronto-based diamond miner and jewellery retailer Harry Winston Diamond Corp. have surged about 43 per cent this year, buoyed by strong demand in Asia.

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"Nothing is too big, nothing is too beautiful, nothing is too expensive for the Chinese today. They are on a quest for true luxury," Frederic de Narp, Harry Winston's chief executive officer, told Reuters.

Bentley, the luxury car brand, provides evidence of the growing appetite for luxury goods in emerging economies. The British auto maker sold a record 396 automobiles in China in the first four months of 2011, making China its second-biggest market behind the United States. One out of every four Bentleys is now sold in China, according to

In Brazil, new luxury malls are attracting brands such as Burberry, Gucci and Chanel, which are aiming to capitalize on the growing purchasing power of Brazilian consumers and the increasing ranks of superrich.

The number of billionaires in Brazil rose to 30 in 2010, up 60 per cent from 2009, as the country benefited from higher commodity prices.

Higher precious metals and diamond costs have prompted retailers such as Tiffany to raise jewellery prices, but it hasn't deterred consumers who come into their stores for $10,000 diamond pendants and $5,000 gold cufflinks.

"Customers are certainly aware of rising commodity costs and we have not experienced any meaningful resistance to higher prices," said Michael Kowalski, Tiffany's chief executive officer.

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