LONDON, United Kingdom — "Very ugly out there," a trader's comment on stock markets in general, applied doubly so to the SLI which suffered its biggest monthly fall since August 2015.

Wanda Ferragamo passed away on October 19. She took over her deceased husband’s shoe business in 1960 and, with the help of their six children, transformed it into a global luxury brand. One of the rules she established was that each child would receive the same salary. Another was that no in-laws were allowed to work for the company. She stepped down as chairman in 2006 but continued to go to the office every day until very recently.

Big News

The risk of being at the top was never so much highlighted as when luxury stocks took a plunge this month from their heady heights. LVMH’s better-than-expected third quarter results failed to quell fears of an impending slowdown in China notably due to tariff wars, a rumoured crackdown on high-end wares by Chinese customs officials and recent falls in the yuan. The company played down any signs of weaker demand, telling analysts it had observed "a little slowdown" among Vuitton's Chinese clientele in the July to September period, with sales growth around 15 percent rather than closer to 20 percent.

For their part, Estée Lauder and Tapestry's quarterly earnings beat expectations and strong results came in from Moncler and Kering, both of which confirming that demand in China remained robust. Nevertheless this could not prevent a sell-off from which the SLI has not fully recovered.

Richemont and Alibaba Group announced a global strategic partnership to bring the retail offerings of Net-a-Porter and Mr Porter to Chinese consumers via dedicated mobile apps and through online stores on Alibaba's Tmall Luxury Pavillion. Two Italian fashion brands received investment this month: womenswear label The Attico received investment from Archive, a company partly owned by Moncler chairman and chief executive Remo Ruffini's Ruffini Partecipazioni Holding, whilst menswear label Slowear received investment from Italian fund NUO Capital.

French heritage fashion label Carven was bought out of insolvency by Shanghai ICICLE Fashion Industry, a China-based womenswear designer and retailer. ADA Cosmetics, which supplies hotels with personal care, cosmetics, spa products and accessories, was acquired by UK-based private equity firm Moonlake Capital in a management buy-out.

Last but not least, speculation is mounting as to who will buy Italian jeweller Buccellati. The company was taken over by China’s Gansu Gangtai in 2017, for an estimated valuation of €270 million; however the new owners have reportedly (according to Corriere della Sera) run into difficulties due to restrictions on investments abroad introduced by the Chinese government. At present, Richemont and Mayhoola are rumoured to be interested but neither company has confirmed or denied this.

The Savigny Luxury Index suffered its worst monthly fall in over three years this month, with a decline of 11 percent versus a decline of almost 6 percent for the MSCI. Both indices lost ground as a result of continued uncertainty over global trade (particularly between the USA and China), an interest rate hike and uncertainty over the mid-term elections in the USA, whilst in the EU Brexit and a looming debt crisis in Italy had their role to play.

SLI vs. MSCI

SLI Graph October 2018 | Source: Courtesy

Going up

• Ferragamo was the only stock to gain ground this month in a rather twisted tale of investor pragmatism, with the death of matriarch Wanda Ferragamo freeing the stock up to bid speculation. The company's shares ended the month just over 1 percent up.

Going down

• 17 companies representing 99 percent of the SLI's market capitalisation experienced share price declines in this month's sell-off, with the majority of the companies losing between 10 and 20 percent of their value.
• Prada lost over a quarter of its market value in October as investors fretted over the impact of a slowdown in China and a potential debt crisis in Italy.
• Highly leveraged Safilo fell almost 22 percent this month driven by continuing poor performance at the company.

What to watch

Burberry, which has all but said goodbye to "see now buy now", is currently looking to release limited edition clothes and products on the 17th of every month in a business model popularised by US streetwear brand Supreme. The first release, which followed a similar one around Tisci's debut runway show in September, featured unisex white T-shirts and sweatshirts with the brand's new monogram, available for 24 hours on a handful of social media channels. The aim is to create hype around the brand and to encourage customers to revisit the brand on a regular basis.

Burberry will still produce two main catwalk collections as well as a series of in between ones. Whether this flash sale model will work for Burberry and whether other luxury peers will jump on the bandwagon remains to be seen. The danger with going down this route is that if too many adopt the flash sale model, consumers will get bored and the fashion industry will be back to chasing its own tail.

Sector valuation

SLI Table October 2018 | Source: Courtesy