Luxury goods group are traditionally hit hard by economic downturns. Lehman Brothers’ analysts point to a 25 per cent cut in earnings in the previous slowdown after the September 11, 2001, terrorist attacks on the US and say that the sector underperformed the market during the period despite its appeal to high-end customers.

LVMH, the world’s largest luxury goods group, saw its profits drop by 20 per cent in 2001. But heading into the current slowdown courtesy of the financial crisis, luxury goods companies appear upbeat.

In some ways they are right to be – they have expanded out of their long-time base in the west into faster-growing countries in emerging markets and analysts’ consensus earnings estimates for this year still point to ten per cent growth in the sector. But can they really escape a global slowdown thanks to rich customers from Dubai, Moscow and Shanghai? Or will they become yet another victim of the credit crunch in the traditional fashion?

Most industry executives insist it will be the former, but most analysts and experts believe the latter. Both sides have supporting evidence but the feeling persists that the luxury goods industry will not escape unscathed.

“At the very top end of the market is a part of the luxury goods sector that is not very cyclical and that is full of growth from the emerging markets.” says Gerry Adolph, a senior management consultant at Booz & Company. “But the aspirational brands in the middle will be the ones most sensitive to the economic slowdown.”

Argument number one for the positive view of the industry is the continued spending by the super-rich. Gerard Aquilina, head of international private banking for Barclays, says his ultra-wealthy clients have felt no effects of the credit crunch and, if anything, are more optimistic at the moment. “They look at this crisis as an opportunity. I haven’t seen a decrease in them buying luxury goods whatsoever,” he says.

That is good news for the most exclusive and traditional brands at the top end of the market such as Chanel and Hermès.

It was notable when Gucci reported mixed first-quarter sales recently that Bottega Veneta, its most upmarket brand, was the top performer, with a 32 per cent sales increase on a comparable basis.

Argument number two for the industry is exposure to emerging markets. Regions such as the Middle East and Asia have developed into main drivers of growth for many companies. Francesco Trapani, chief executive of Bulgari, says softness in the US and some parts of Europe is being offset by the strength of Asia. All of this shows how far the balance of power has shifted in the industry and how the worst-performing luxury goods companies currently are those with the highest exposure to countries such as the US and UK.

Examples abound of success in countries recently thought unable to support a big luxury goods sector – LVMH, with its stable of luxury goods from Louis Vuitton to Dom Pérignon, more than tripled its revenues in Vietnam last year while Richemont of Switzerland says it sees growth not just in China but in virtually every country in Asia.

But will the emerging markets be enough, and could the slowdown hit them eventually?

There seems little doubt that the rich of the Middle East and elsewhere, flush with oil and raw material cash, will continue to splurge. But it is less clear what will happen in other regions such as China if the ripple effects of the financial crisis reach them.

Allegra Perry, analyst at Lehman Brothers, points out that 50-60 per cent of the luxury goods industry’s consumers remain in classic, developed markets. “The most important thing right now is geographical exposure,” she says.

The naysayers have not just history to back them up but also early evidence that points to a slowdown from companies themselves – Bulgari felt slower sales growth in March, Richemont at the end of last year, while Gucci sold less in the first quarter than last year.

Top-end department stores in the US, such as Neiman Marcus and Saks, reported that it was not just aspirational luxury customers cutting back on spending but the very rich ones as well.

Robert Burke, a former luxury retail executive who is now head of Robert Burke Associates, a consultancy, says US consumers are definitely cutting back on spending but foreign tourists to the US are using the cheap dollar to go on shopping sprees.

“Is that enough to offset the losses? In some cases yes, in many others no,” he says. “When times get tough, though, the aspirational luxury buyer is pinched out of the market first.”

All experts are agreed that consumers are likely to become more discerning. And that in turn is likely to lead to a shake-out in the industry with the lower-end brands and the aspirational marques suffering the most.

“Companies selling the $10,000 to $20,000 handbag are likely to be OK but those that moved downmarket to find growth – like Burberry or even Gucci – are going to be more exposed,” says Mr Adolph.

Rogerio Fujimori, an analyst at Credit Suisse, agrees that more accessible companies such as Coach in the US are the most likely to struggle. But he says factors other than the economic slowdown will determine how luxury goods groups perform – particularly tourism flows and the related issue of currencies.

One consequence of the possible shake-out of the industry is that many expect to see a return of merger and acquisitions activity. Many in the industry still have a sour taste in their mouth from the last round of deals that peaked with the ill-timed purchase of Gucci by PPR on September 10, 2001.

But LVMH, the arch-rival of PPR, in April made its first acquisition in years when it paid several hundred million euros for Hublot, the high-end watchmaker. Experts such as Mr Burke and Mr Adolph expect to see companies from outside the sector and from areas such as Asia and the Middle East becoming involved. Mr Burke says he is advising SK Networks, a South Korean conglomerate, as well as investors from Dubai. Mr Adolph underlines that many companies still owned by the founder, such as Armani, need to decide on their development and, if they sell, whether to become part of a luxury goods conglomerate or sell to an alternative buyer.

As a sign of how investors see the sector going, rumours have already started up about Hermès, the French group that is one of the most expensive and best-protected in the sector.

Few in the industry doubt that – acquisitions or not – “some kind of slowdown is inevitable”, as Mr Fujimori says. But the jury remains out on how hard the impact will be. As in many industries the flight to quality is likely to be apparent.

Mr Burke says: “The true luxury shopper is going to be more discerning than in the past. They are going to buy fewer things and more selectively.”