SUCCESS: Luxury stocks have been strong pandemic outperformers (see chart). Both ‘narrow’ luxury like fashion, leather goods, beauty, or ‘broad’ plays including cars, spirits, sportswear. They enjoy strong brands, big profit margins, non-cyclical growth drivers of exclusivity and status. This supports high valuations. These trends will endure regardless of volatility. This rare European-dominated sector will benefit from a stabilizing China, weak EUR, and new embrace of online sales-channels and younger consumers.
PANDEMIC: Covid drove big shifts. From experiences spending, like travel, back to goods. From offline to online sales. Supply bottlenecks reinforced exclusivity and pricing. China, historically ⅓ of sales, suffered with its zero-covid and new ‘common prosperity’ policy. The US compensated, with ‘excess savings’ and rising asset prices.
OUTLOOK: Chinese demand will re-assert itself as their economy stabilizes. A weak Euro helps cushion high profit margins. The rise of NFTs and social gaming opens new growth avenues. The rise of sustainability, supply chain integration, and multi-brand luxury conglomerates hikes barriers-to-entry. They should prosper in a post-covid world.
EUROPE: France dominates the ‘narrow’ luxury industry, with LVMH (MC.PA), Hermes (RMS.PA), Dior (CDI.PA), Kering (KER.PA). All near $100 billion market caps. Followed by Switzerland’s Richemont (CFR.ZU), and Italy’s Moncler (MONC.MI), Ferragamo (SFER.MI), and Tods (TOD.MI). Broader luxury often includes prestige cars, like Tesla (TSLA), Ferrari (RACE), or spirits makers, like Diageo (DGE.L), Pernod-Ricard (RI.PA).
All data, figures & charts are valid as of 27/01/2022