The music doesn't sound so sweet over at high-end audio-visual equipment maker Bang & Olufsen. The Danish company announced a downgrade on profit expectations for the year this morning.
AP
It's the third profit warning the company has issued so far this year and leaves little doubt that the appetite for $30,000 television sets in Europe is on the wane. The acting CEO Peter Thostrup was on the program and sounded like a man faced with tough cost-cutting decisions. And job losses will be the response. He insists prices of products will not be cut to encourage sales
That has to be right; ultimately buyers of aspirational luxury products expect to pay a luxury product price tag. There is little sustainability in cut-price premium brands.
The real challenge for B&O is to quickly adjust its sales mix to reflect the global spread of wealth. Despite wobbles in global equity markets the BRIC economies are still growing faster than the developed world, and creating a new class of consumers of luxury goods.
B&O's management has just begun to wake up to this opportunity. Some 80 percent of their revenue still comes from Europe -– unlike typical luxury goods companies that tend to generate a third in Europe, a third in North America and a third in the rest of the world. If they can create hunger for their products in these new markets the outlook will brighten.
They have a globally competitive range of products, they just need to get out there and create global brand awareness.
The broader message from B&O should worry anyone complacent about the prospects for the luxury goods sector. The optimists argue that the rich continue to spend in spite of downturns. Perhaps that happened in past cycles, but the credit crunch has taken a samurai sword to legions of financial industry workers who are natural buyers of luxury goods. It has also changed the credit environment, making it harder for consumers of luxury goods who borrow to indulge their aspirations.
If the mass affluent are cutting back on consumption we can expect to see further negative news from the sector during this second-quarter earnings season. The best place to resist slowing sales will be those companies that have already spread desire for their products into the emerging economies.
Send feedback via the blog (click here) or directly to CNBC Europe.
