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Market Pulse | Reassurance

Savigny Luxury Index November 2012 | Source: Savigny Partners
  • Pierre Mallevays

LONDON, United Kingdom — The Savigny Luxury Index ('SLI') increased by almost 3 percent in November, while the MSCI World Index ('MSCI') slipped nearly 1 percent for the month.  From mid-November, global markets and the SLI enjoyed a strong rally on better economic news from China and hopes that the US might avoid the feared fiscal cliff.

Big news

  • A flurry of positive economic newsflow has lifted investors' spirits.  The government handover has happened seamlessly in China and it looks like its economy will avoid a hard landing.  Investors' fears have been assuaged by US elections results and the progress of fiscal cliff talks.  The Greek debt crisis is also inching its way to a solution.
  • Hermès' third quarter results reassured investors over slowing Asian economies.  The group posted double digit growth in all regions and all product categories, greatly outperforming market expectations.  This is all the more impressive as the group opened only two new stores in 2012.
  • After recording their first decline in two and half years in September, Swiss watch exports rose by over 13 percent in October as Asian tourists bought watches in Germany and Italy.  However doubts remain as to whether this uptick marked the end of what would have been a very short destocking cycle.  Indeed, exports to China, the third biggest market after the US and Hong Kong, fell by more than 12 percent in November.  The Swiss Watch Federation also forecast a decline in export rates to mid-single digits for the full year from nearly 20 percent in the previous year.
  • M&A deal flow continues to be strong: loss-making jewellery company Fabergé's ownership structure has been made more transparent following a capital injection from Gemfields Resources; private equity firm Apax Partners acquired US leathergoods brand Cole Haan; online retailer ASOS acquired luxury resale online retailer Covetique; L'Oréal acquired make-up brand Urban Decay; Luxottica acquired eyewear maker Alain Mikli; Maus Frères acquired Lacoste and Investcorp acquired Georg Jensen.

Going up

  • Watchmakers Richemont and Swatch's shares were up 18 percent and 16 percent respectively over the month driven by an improved outlook for Swiss watch exports.  In its first half results, Richemont announced that overall growth in the Asia-Pacific region, which accounts for 41 percent of the group sales, was normalising after two exceptional years, but confirmed that any slowdown in Asia was compensated by increased spending by Asian tourists in Europe.

Going down

  • Michael Kors' share price lost ground after the company revised its third quarter outlook downwards mentioning the impact of Hurricane Sandy.
  • Tiffany's share tumbled by nearly 7 percent after it reported a 30 percent drop in third-quarter earnings, as higher taxes and precious metal and diamond costs cut into margins.

What to watch

  • Thanksgiving sales, one of the sector's benchmarks for the upcoming holiday sales performance, have been robust.  Investors are nevertheless holding back, pending further sales results over the holiday season.
  • Jordi Constans, a former senior executive at French yoghurt-maker Danone, has officially taken over from Yves Carcelle as the CEO of Louis Vuitton.  Richemont, the world's second largest luxury group, has also announced plans to change its CEO.  Two veteran managers, Bernard Fornas, current Cartier chief, and Richard Lepeu, deputy chief executive, respectively with a marketing and finance background, will jointly replace founder and controlling shareholder Johann Rupert as CEO in April 2013.  Two of the sector's most iconic and biggest brands are changing managerial hands in a climate of slower growth.

Sector Valuation

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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