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News analysis: Luxury revival boosts family businesses

An aura of austerity might be gripping the economies of Europe and America but luxury spending seems to be little aware of it. That's good news for many family businesses that still comprise a big part of the luxury product and service sector. 

Hermes, the Paris-based luxury product firm still controlled by descendants of the original founding family, reported this week that sales rose 23% on an annual basis in the first half of 2010.
 
Demand didn't just rise in the fast-growing economies in Asia, but also saw strong growth in Europe and the Americas, where sales rose 20% and 36% respectively.
 
Hermes share price has risen 25% this year – outperforming most stocks on France's main stock index, the CAC40.
 
The world's largest luxury product group, LVMH, controlled by the Arnault family, is expected to report robust first half results next week, after notching up impressive revenue growth in the first quarter, especially in its watches and jewellery business.
 
The family behind L'Oreal might be embroiled in a nasty family feud but that hasn't harmed the share price, which is up 16% so far this year. Sales at the luxury cosmetic maker were up 12% in the first half.
 
They are all benefiting from a global boom in luxury spending that appears to have shrugged off austerity in many other parts of the world's economy.
 
That is borne out by research released yesterday in the UK by Walpole, a luxury membership lobbying group, and Ledbury Research, a research group that specialises in the luxury sector, that found luxury sales in 2009 had been much better than expected and respondents were upbeat about this year.
 
The research might be specific to the UK, but it can be reasonably assumed that similar trends would be found in other big economies. Sales figures at Hermes back this up.
 
Some have cautioned about too fast expansion. Vittorio Missoni, second-generation CEO of privately-owned Italian fashion house Missoni, said in an interview with Campden FB earlier this year: "In the Far East our growth in the 1980s and 1990s was too fast. Everyone wanted malls and shops in department stores. But then when the crisis hit, we were left with too much distribution."

Nevertheless, the very wealthy families behind LVMH and Hermes are reaping the rewards of current strong demand, and smaller family-controlled businesses which are part of the supply chain to these luxury producers and others will be happy that austerity isn't filtering up to high-end spending.

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