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In the Lap of Luxury: Luxury Companies and Assets Perform in Challenged Economy

In the Lap of Luxury: Luxury Companies and Assets Perform in Challenged Economy
April 20, 2023
Dylan Dittrich

Photo: Chi Lok Tsang

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It’s hard to find many things that are up 51% in value over the last year…perhaps not as hard as it is to buy Hermès Birkin bags at retail, and maybe that speaks to why Hermès stock has ascended so swiftly in recent months.

Not too far behind Hermès, by the way, is LVMH, which is up 37% over the same period.

While so many markets, companies, and assets have faltered, French luxury, Hermès and LVMH, and their products are delivering. Last week, both companies reported first quarter earnings, and the results in the current economic climate are noteworthy. Hermès delivered 22% year-over-year revenue growth, while LVMH growth clocked in a shade lower at 17%. Global demand for their products remains not only resilient but robust, and the appetite for fine leather goods and jewelry is voracious. In fact, Hermes is intent on opening new leather goods workshops to assuage the incredible supply and demand imbalance.

The customer bases for these companies are loyal, and that loyalty doesn’t waver at mere rumblings of recession. They’re not necessarily “recession proof”, as past episodes have shown, but until stuff really hits the fan, those customers aren’t going to raise questions about the loyal reputation they’ve worked so hard to attain….at least as long as they don’t want to miss their shots at retail-priced Birkins….

The strength of the Chinese market was notable in both companies’ reports after the easing of COVID restrictions, with Hermès enjoying 26% Y/Y growth in Asia ex-Japan and LVMH seeing more modest 14% growth in the region. While the appetite there is encouraging, growth is actually quite strong globally. For example, Hermès saw 28% growth in France, 26% in Japan, 21% in Europe ex-France, and 19% in the Americas. The truly global nature of this phenomenon further emphasizes the bull case for certain luxury assets.

Of course, there are no assurances retail and wholesale success will translate to appreciation in secondary market values. However, those successes do highlight the companies’ ability to pass on higher prices to consumers, who in turn willingly accept them due to the scarcity of the products.

Continued strength of business results to start 2023 follows a 2022 that saw luxury auction volume take to new heights at the large houses. Sotheby’s luxury sales were up 16% last year, with fairly consistent growth across handbags, jewelry, and watches, while Christie’s delivered 15% growth in the department. This growth was not the result of a higher volume of auction lots, but mostly resulted from the realization of higher average prices.

Importantly, luxury offerings are seen as a gateway of sorts to auction houses, with the potential to capture new bidders and eventually convert those bidders into customers for higher ticket art items. Similarly, luxury is also viewed as strategically important in gaining a foothold in Asian markets.

With other auction categories perhaps showing early signs of wobbling in 2023, it’s possible luxury bidding could prove underwhelming relative to last year. Still, luxury asset sellers and the houses will take comfort in knowing that retail results continue to emphasize the unfailing resolve of loyal consumers.

That’s a luxury known to very few markets.

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