LONDON, United Kingdom — The prospect of interest rate cuts in the USA, complemented by a brief hiatus in Hong Kong’s mass protests and positive reports from Chanel and LVMH caused the SLI to bounce back this month.
Chanel reported annual results for the second time in its history, with revenues climbing 13 percent to over $11 billion, driven by strong performance across all regions, and in particular Asia-Pacific. The company confirmed that it intended to remain independent and that there were no plans for an IPO.
Chanel also revealed that it had invested $1 billion in its store network, tech projects and acquisitions in 2018 and that it was planning to double that amount in 2019.
LVMH hosted a two-day closed-door briefing on Louis Vuitton with analysts this month, during which it confirmed that business was strong in both China and the USA despite the on-going trade tensions between the two countries. Notably, Vuitton’s Chief Executive Michael Burke was quoted as saying demand for Vuitton products within Mainland China was still at "unheard of" levels; the brand has been building up inventory to support its booming e-commerce business in the market.
Prada has also confirmed the growing importance of online sales in Mainland China by teaming up with local player JD.com to launch a flagship store on its platform.
More and more brands are hitching themselves to the sustainability bandwagon. This month, Prada announced plans to launch a capsule collection of nylon bags made out of recycled plastic and has committed to use only recycled nylon by 2021. Ralph Lauren also committed to using 100 percent sustainably sourced key materials, including cotton, in its products by 2025.
Auction house Sotheby’s has agreed to be acquired by private investor Patrick Drahi for $3.7 billion, which represents a 61 percent premium to Sotheby’s share price on the day before the transaction was announced. In high-end beauty Clive Christian, known for selling the most expensive perfume in the world, was acquired by Italian fragrance and skincare group Nichebox; and Japanese skincare brand Tatcha was acquired by Unilever.
There was also a slurry of deals in affordable luxury this month: jewellery brands Atelier d’Amaya and Puravida were acquired by Belgian fund Vendis Capital and US accessories group Vera Bradley respectively; Italian leather goods brand Il Bisonte was acquired by Japan-based apparel group Look Holdings and Hong Kong intimate apparel company Bogart Group was acquired by Israeli textile firm Delta Galil.
The Savigny Luxury Index (“SLI”) bounced back this month, rallying 10 percent, a healthy outperformance of six points versus the MSCI, spurred by the prospect of lower interest rates in the USA, positive news flow from industry giants LVMH and Chanel as well as a brief hiatus in the protests against the proposed extradition bill to Mainland China. Nevertheless, a lot hangs in the balance given the continued civil unrest in Hong Kong, which remains a strategic market for luxury goods.
SLI vs. MSCI
- Moncler gained almost 14 percent in June on the back of broker upgrades and the halo effect of Italy winning the bid to host the 2026 winter Olympics in Milan and Cortina d’Ampezzo.
- Estée Lauder also gained almost 14 percent this month: the stock is the second-best performing constituent of the SLI so far this year, having gained over 40 percent since the beginning of the year, driven by its high exposure to fast-growing markets such as China and its successful multi-brand strategy.
- Safilo’s share price declined almost 6 percent this month, no doubt weighed down by the prospect of losing its Christian Dior license by the end of 2020.
- Tod’s also suffered a decline of close to 6 percent in June, prompted by a series of broker downgrades.
What to watch
Social media is creating a buzz and larger groups are weighing in on platforms such as Instagram, which has become a favourite for fashionistas and beauty junkies. Louis Vuitton and Kering now both allocate half of their marketing costs to digital media in an effort to capture a younger audience, and it is working.
Both groups have a number of brands that are ranked top 10 in terms of social media buzz, according to a survey by influencer marketing firm Tribe Dynamics. This is a marked shift from a few years ago, when social media was the mainstay of niche/emerging brands. Now that the money is pouring in, smaller brands will either have to be inventive or risk being drowned out by their larger rivals.
Pierre Mallevays is the founder and managing partner of Savigny Partners LLP, a financial advisory firm focusing on luxury brands and retail.