Handbag sales may slow as jewelry shines

The $7 billion U.S. market for handbags, the fastest-growing product in the fashion industry, may be slowing from record growth.

U.S. sales increases that peaked at 28 percent in 2004, the strongest on record, may give way to as little as 15 percent this year and aren't showing signs of returning until at least 2009, according to the New York-based stock research firm Telsey Advisory Group.

"The handbag business has softened up a little bit," said Kathryn Deane, president of New York fashion-consulting firm Tobe. "When the consumer looks at accessories, she is not just looking at handbags anymore."

U.S. handbag sales gains may have peaked as competition from shoes and jewelry heats up and higher gasoline and mortgage costs slow consumer spending.

LVMH Moet Hennessy Louis Vuitton SA's gain in sales of fashion and leather goods may slow below the 11 percent the Paris-based company recorded in 2006, said John Guy, an analyst at MF Global Securities in London.

U.S. sales of handbags costing at least $100 may expand 20 percent this year, compared with 22 percent last year, according to New York-based Coach Inc., which says it's the U.S. leader with a 31 percent market share. Handbag demand ignited in the late 1990s.

"Slower growth in the handbag segment overall is a prudent outlook given the economic situation we find ourselves in right now," said Patricia Edwards, who helps manage $11.9 billion, including Coach shares, at Wentworth, Hauser & Violich in Seattle.

Coach is taking a positive view of the market, spokeswoman Andrea Resnick said. The projected U.S. sales gain of 20 percent is an extension of five years of gains, Resnick said.

Handbag makers, led by Coach and Louis Vuitton, are vying for the attention of consumers who are spending money on Tory Burch ballet flats and David Yurman bracelets, retail executives said.

"It used to be all about the shoes and our woman had so many shoes in her closet, then it became the multiplicity of handbags," Saks Inc. Chief Executive Officer Stephen Sadove told investors at a Goldman Sachs Group Inc. conference on Sept. 6. "What you are seeing now is a new trend, which is branded designer fine jewelry."

Coach expects its total revenue from worldwide sales to increase 21 percent in the year through June 28, 2008, Chief Financial Officer Michael Devine told analysts meeting at its headquarters on Sept. 7. That's below the 28 percent rise the previous year. Handbags accounted for 64 percent of Coach's sales in the year ended June 30.

Louis Vuitton has found that "growth in the U.S. luxury market segment continues to accelerate on an annual basis," Molly Morse, a spokeswoman, said declining to provide figures.

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