It has been a year for developing a taste for luxury. The wealthy, who amassed savings during the lockdown, have offered themselves handbags and watches, in a trend dubbed ‘revenge spending’.
Even investors immune to the allure of high-priced products from Hermes, Kering, LVMH, Moncler, Richemont, and others found their actions irresistible.
These companies – seen by some as the European equivalent of America’s tech giants – have rebounded faster than expected.
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Consumers sought “to return to the life they knew, but also to avoid fast fashion in favor of something more thoughtful, less disposable”, explains Swetha Ramachandran, fund manager of GAM’s Luxury Brands, asset manager .
As a result, the global luxury goods market is worth € 283 billion (£ 237 billion) and is expected to reach € 360-380 billion by 2025, when young customers are expected to account for 70% of customers, according to the consultancy firm Bain & Company. .
As Ramachandran explains, Generations Y and Z see luxury goods as an “asset class,” checking the resale values of watches on sites like Chrono24.
Even if you can do without a £ 2,250 Tag Heuer Carrera watch from LVMH, or a £ 1,500 Jackie bag from Gucci, one of the Kering houses, it seems like now is a good time to throw away. an objective eye on the actions of these companies, especially since 2022 is expected to be a period of ‘revenge friendliness’ when, if the Covid variants allow it, the enjoyment of any sybaritic experiences, such as five-star hotels , is back in force.
Like me, you may already have a stake in the sector if you own Fundsmith Equity which owns LVMH, or Scottish Mortgage where Kering is part of the portfolio.
Stephen Yiu, manager of Blue Whale Equity has also opted for Kering, which includes Bottega Veneta, Balenciaga and Gucci. The latter is in the spotlight as a brand at the center of Ridley Scott’s latest film, House Of Gucci.
Since January, shares of Hermès have risen 80%, while Richemont, owner of Montblanc and Van Cleef & Arpels, has jumped 75%. Powerful LVMH, whose brands include Dior, Louis Vuitton and Moet Hennessy, rose 40%.
The revival of LVMH highlights the pivot of the sector in attracting a new generation of buyers. The new faces of Tiffany, the legendary jeweler acquired by LVMH in July, are Beyonce and Jay-Z, and US Open champion Emma Raducanu, new tennis star.
Observers of such things will note that Jay-Z’s favorite watch is the Jaeger-LeCoultre – a Richemont brand available at Goldsmiths and the other stores of Watches of Switzerland, a British luxury goods company. Its shares have jumped 143 percent this year, thanks to demand for expensive timepieces that are in short supply.
Can this progress be sustained? Or could Beijing spoil the party?
Chinese buyers, who love brands, may have stayed away from Bond Street, but they are buying from their homes.
The ranks of China’s middle class are expected to double to 800m by 2030, increasing the clamor for high-end goods. But the ability of the newly rich Chinese to flaunt their fantasies could be threatened by a new policy, an effort to redistribute wealth for “common prosperity.”
Yiu says this change is cause for concern, but it’s hard to say if it will still be the focus in five years. Some believe that Burberry, with its understated aesthetic, could be the beneficiary of a crackdown on bling. This company is one of the largest holdings in Lindsell Train UK Equity, which also owns shares in Daily Mail and General Trust.
Ramachandran argues that the adaptive capacity of luxury goods companies should help them cope with climate change in China.
The recent transformation of the industry’s online operations is proof of this flexibility.
In June 2020, this column reported the remarks of the boss of Moncler, Remo Ruffini, according to which the luxury brands “had to reframe the new normal”. Most have overcome these challenges, while cutting costs to increase their profit margins.
The aura that surrounds luxury products, the result of skillful marketing, can alter the perception of the companies behind these beautiful things. Bain argues that luxury brands are transforming from product makers into “goal-driven” operators, helping to move towards “a more sustainable, diverse and equal society.”
This would seem to overstate their role, but luxury stocks, held either individually or through a fund like the Amundi ETF (Exchange Traded Fund) can play a role in a balanced portfolio. For me, it’s worth betting on people who want to treat themselves after a rough time – and who have the money to give in to temptation.
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