After three years of decline in the luxury goods market, Japan is leading the way again. According to a study from consultancy Bain & Company and Altagamma, the trade association for the Italian luxury industry, luxury goods sales grew 5 per cent last year in Japan, after falling and then stabilising in the previous four years.

Despite the downturn the luxury market seems relatively resistant and growing steadily, especially in Asia, said the study, where the population of millionaires grew by 9.7 per cent last year according to a report by Merrill Lynch and Capgemini. 

Brand buying

The increase in the luxury goods market has been bolstered through direct brand buying, which grew 14 per cent. Direct-owned stores have a growth rate 50 per cent higher than department and wholesale stores and account for nearly 30 per cent of luxury sales worldwide, the report said.

Following this trend, last month Italian brand Cavalli opened its first flagship store in Tokyo. Previously it only had a presence in the Japanese markets through department stores.

The UK brand Mulberry has also agreed to a 10-year distribution deal to sell its products in department stores and open flagship stores in Tokyo and Osaka. The brand expects overseas sales to surpass those at home within two years.

Global growth

Bain and Co predicts 10 per cent growth in luxury sales in Europe and 12 per cent growth in the Americas in absolute terms, although these figures will be affected by the weakening euro.

Globally, a sales increase of 10 per cent is expected for this year, bringing the total spent to €191 billion.

China's impact on the figures is huge: Chinese consumers account for a fifth of the global market (which includes spending in mainland China and Chinese tourists spending abroad).

Developing market growth in China was 35 per cent, Brazil 20 per cent and 12 per cent in the Middle East.

An investment opportunity

Mindful of growth opportunities in the luxury market, investment managers are piling into luxury stocks. At the inaugural WealthMatters forum hosted by ClearView Financial Media earlier this month, Nicole Vettise, a client portfolio manager in global equities at JP Morgan Asset Management,  spoke about the firm's bullish stance on luxury stocks. 

She said: "We’ve been adding to our exposure of luxury stocks. Although there has been a lot of nervousness about the growth of China, luxury companies with a presence in the region remain very positive.” 

She pointed to Sotheby’s hosting Hong Kong’s largest auction earlier this month, which realised a total of $410 million - far surpassing the $350 million estimate.

Meanwhile, Prada has said it expects revenue growth to continue at 20-30 per cent per annum, and that it plans to open 60 new stores in China over the next three years.

Vettise admitted that in luxury names were hit hard amid the turmoil of the financial crisis, but today those companies are trading at much lower price-to-earnings ratios than in 2008.