Luxury goods living large

Consumer confidence may have remained weak last year, but you wouldn't have thought it if you'd been keeping an eye on the progress of those companies supplying the more luxurious end of the market.

Supergroup - which counts David Beckham among admirers of its clothing - saw its shares soar after flotation in March. Burberry, the only other company in the sector, was the fourth best performer on the entire blue chip index in 2010. Having shaken off its former "chav" associations, it's taken the fashion world by storm this year, gracing 130 glossy magazine covers in the last six months and its webcast London fashion show was watched by 650,000 people worldwide.

Certainly, one reason for the apparent immunity of these companies to poor sentiment in the UK has been their global exposure. Iconic British brands - which also include Aim-traded Mulberry, whose shares more than quadrupled last year on strong demand for its high-end handbags - are catching up with the likes of Louis Vuitton or Tommy Hilfiger to become must haves for the increasingly affluent and fashion conscious shoppers in booming luxury retail markets in the Middle East and Asia Pacific. Sensibly, both Burberry and Supergroup have focused their expansion on these wealthy regions.

China, in particular, is becoming a crucial region for luxury brands. The Middle Kingdom is already the world's second largest luxury goods market behind Japan. And with a burgeoning middle class keen to flaunt their newly achieved wealth and social status, China is expected to become the largest market within five years. Burberry bought out its Chinese franchise partner last year at a cost of £70m, and will have added another 10 stores to the 50 it acquired by the time of its March year-end. The move should give it more control over its offering in a market growing at 30 per cent a year.

Supergroup is taking a slightly different approach to international expansion, opting to use franchise and license partners to enter new markets, an approach which means the business is not having to tie up huge amounts of capital. That's enabled the company to grow quickly to 53 overseas stores, and a strong pipeline of new franchise partners should keep its wholesale revenues growing in high double digits this year. That said, its stellar rating of 30 times forecast earnings demands no less, and, as a recent warning on costs demonstrated, any further slip ups could be severely punished.

BURBERRY GROUP11214884261.487.9

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