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Italian Fashion Houses Bulgari, Versace, Giorgio Armani and
 Salvatore Ferragamo Enter the Luxury Hotel Market

By Robert Galbraith in, The Business, LondonMcClatchy-Tribune Business News

Nov. 9, 2006 - MILAN, Italy -- With buoyant international growth, global equity markets that keep hitting new highs plus a record year in the City and Wall Street, the super-rich are having their best year ever.

All this wealth sloshing around has fuelled a boom in exclusive hotels; now some luxury Italian fashion houses are leveraging their experience in dealing with the rich and famous by entering the luxury hotel market.

Global luxury goods sales will rise 10 percent to E160bn in 2006, according to a study commissioned by Italy's high-end design association, Altagamma; so the Italian giants have plenty of cash to fund their growth.

Rome jeweller Bulgari started the trend in Italy with a hotel in the centre of Milan; now it has opened a 59-villa resort on a lavish cliff-top setting in Bali. Versace opened its first hotel on the Australian Gold Coast in 2000; it is building another in Dubai.

Giorgio Armani chose the same city for his first venture into property development, which will open in 2008. He is planning another hotel in the heart of Milan's fashion district. The Italian designers are hoping to straddle the globe with exclusive boutique hotel chains.

Armani has teamed up with Middle East property developer EMIR; Bulgari's partner is Ritz-Carlton, a division of Marriott international; Versace's is the Sunland Group.

Other fashion labels will soon take the plunge too, partly to establish distinctive icons to advertise their brands around the globe. Salvatore Ferragamo already owns hotels in its home city of Florence; but they are not branded with the famous name. Now it is building an exclusive branded resort near the Tuscan hilltop town of Montalcino.

Hotels and resorts are seen as a new frontier in the luxury goods business, where diversification and brand extension gather pace. With so many rich folk to cater for, demand for quality accommodation has never been higher and the value of hotels has risen accordingly.

In the United States, luxury hotels are now selling at more than $1m (E780m, £530m) a room for the first time; $2m a room was paid recently for a luxury hotel in Milan.

According to the World Wealth Report, compiled by Merrill Lynch and Capgemini, the number of individuals with net financial assets of more than $1m grew by 6.5 percent to 8.7m in 2005. The biggest increases in numbers of high net worth individuals is no longer just in the United States but countries such as South Korea (up by 21.3 percent last year), India (19.3 percent) and Russia (17.4 percent).

Advertising in the different countries is an arduous and expensive way to do keep a brand prominent in the minds and hearts of the travelling wealthy. A hotel is so much more effective. Not only do large numbers pass through but they are fully immersed in the values and style of the brand during their short stay.

That is why Bulgari's chief executive, Francesco Trapani, recently described the new Bali resort as a huge public relations vehicle for the Asian market. The Italian jeweller plans other hotels in Paris, London, Tokyo and New York, as well as new resorts.

The revenues from Bulgari's Milan hotel business rose 17.1 percent to E5.5m in the first half of 2006. That compares to E358m revenues generated by the jewellery division and E79m from perfumes.

The real test for the hotel ventures is likely to come when the going gets tough. So far they have enjoyed favourable conditions, with occupation rates still rising and the world's wealthy travelling more extensively than ever.

Some will struggle when the global economy finally slows or if another major geopolitical crisis breaks out. Only then will we see if fashion companies were right to put all their goods in the same luxury basket.

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Copyright (c) 2006, The Business, London

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