Following a weak end to 2008, when turnover fell by 9.7%, Bulgari is likely to reveal a net loss for Q1 2009, as the global luxury jewelry market contracts in the wake of current economic turbulence. Moreover, as a general economic recovery seems unlikely, the outlook for 2009 remains bleak.
Bulgari faced a daunting start to 2009, with CEO Francesco Trapani revealing that "January started badly" at the annual shareholders' meeting. Indeed, net profit fell by an astonishing 89% in last quarter of 2008, with total profit for the year tumbling by 45.1%. In addition, operating costs rose by 10.6%, leading to the announcement that the retailer would be employing new cost-cutting strategies in 2009, including the closure of underperforming stores.
Since 2008, the global jewelry market has struggled. An example of this can be seen with Tiffany & Co., one of the top selling jewelry brands, applying discounting measures for the first time during February 2009. Recent trends indicate that consumers are less willing to purchase showy luxury jewelry and are instead opting for high quality durable pieces that they can wear across seasons. Consumers still keen on acquiring Bulgari pieces are doing so much less frequently than in more affluent times, while also spending less during their visits. Furthermore, non-core customers are recognizing that unbranded items such as engagement rings can be purchased at a lower price elsewhere. Such trends have significantly affected Bulgari, with sales of jewelry and watches falling 17% and 28%, respectively, and only the Middle East currently showing a positive sales performance.
To counteract these changes in consumer behavior, while at the same time maintaining the brand's exclusive image, Bulgari is keen on keeping prices high and shutting underperforming outlets. However, previous plans to open 10 further outlets in 2009, including a flagship store in San Francisco, will go ahead, as Mr Trapani looks to focus more on the commercial aspect of the business. Mr Trapani is confident that cost-cutting strategies and new stores will allow sales to pick up in time for Christmas 2009 and predicts the season will outperform that of 2008. However, Verdict Research believes that shopping levels are unlikely to regain previous lofty heights this year. Indeed, as consumers tighten their purse strings and cut down on branded purchases, it is unlikely that the luxury jewelry market will pick up in 2009.
Source: Verdict Research