Market Pulse | All Systems Go

Savigny Luxury Index May 2011 | Source: Savigny Partners

LONDON, United Kingdom As luxury stock valuations continue to roar ahead, even as the overall market has stalled, and luxury brands go to private and public investors to finance further expansion, we take our monthly check of the Market Pulse to understand the key drivers.

Big news

• The Savigny Luxury Index continues its upward trend led by the bullish outlook for the sector in terms of both organic growth and acquisitions

• Continued good news flow with Hermès announcing outstanding Q1 results despite its exposure to Japan, which remains its largest market (representing almost a fifth of its revenues).  Burberry also posted stellar full year (end March 2011) results but signaled further investment in order to capitalise on the brand’s momentum

• There has been a flurry of M&A activity during the last month despite high valuations.  Puig acquired the fashion house Jean-Paul Gaultier from Hermès.  Labelux went on a shopping spree bagging Jimmy Choo from TowerBrook and Belstaff from the Malenotti family.  Department store group Coin was acquired by BC Partners.  French leather goods brand Le Tanneur was acquired by Qatar Luxury Group, owned by the Emir of Qatar’s spouse.  Chinese conglomerate Fosun bought a minority stake in the Greek jewellery brand Folli-Follie

Going up

• Hermès’s valuation continues to climb higher despite lack of clarity over Japan

• Strong Q1 results and bid speculation have fuelled Coach and Tiffany’s share prices


Going down

Ralph Lauren’s share price dipped after the company announced disappointing Q4 results due to higher operating costs

What to watch

• Strong growth potential in China is fuelling competition amongst brands who all want a slice of the pie.  This may drive overheads and rental costs up and put pressure on margins

Luxury Sector Valuation, May 2011

Pierre Mallevays is a contributing editor at The Business of Fashion and founder and managing partner of Savigny Partners, a corporate advisory firm focusing on the retail and luxury goods industry

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  1. I’m confused about your comments on Hermès revenue. Japan has not been the largest market for Hermès since 2008. The rest of Asia was roughly 30% of sales in Q1 2011, compared to 16% from Japan.

    More importantly, what do you think of Hermès’ use of a Chinese brand to expand there? It feels ahead of the curve given the Asian change of attitude toward European brands, but I’m curious to see how this will play out.

  2. Dear Yasha,
    I am sorry you got confused! Japan is indeed still Hermès’s largest market on an individual country basis (more or less on a par with France); however I agree that the rest of Asia as a whole is considerably bigger, and I guess national borders don’t mean much so you have a point!
    On the second part of your comment I think Shang Xia is a truly remarkable venture – am actually flying to Shanghai tomorrow and will definitely pay it a visit. It is very early days for the brand, but also so typical of Hermès to do a project that is seemingly only guided by long term interest. For that alone we have to be impressed!