Can the luxury sector withstand a recession?
Hermès is synonymous with exclusivity. Its iconic Birkin bag, which sold for $450,000 last year, cannot be purchased from the luxury brand’s website or by simply walking into a store. There are no advertisements in fashion magazines or glossy campaigns on Instagram. For those who are not famous, owning a Birkin can involve a waitlist that lasts for years.
One reason for the waitlist is limited supply, which Hermès manages with the precision that matches its stitching. However, another reason is the increasing demand for all types of luxury goods. Last year, Kering’s net profits, which owns fashion labels such as Gucci and Balenciaga, increased by 14%. LVMH, the owner of Tiffany and Louis Vuitton, among other brands, saw its net profits grow by almost a quarter. Hermès and Richemont, which owns Cartier, among other luxury brands, saw their net profits surge by more than a third. Together, the four groups earned over €33bn ($35bn) in profits, with combined revenues of around $130bn.
However, this was before persistent inflation and rising interest rates to combat it sparked fears of a global recession. Now, as these fears intensify, luxury brands are losing their appeal, at least in the eyes of investors. The luxury bosses’ concerns expressed at an industry conference on May 22nd triggered a sell-off that wiped $65bn, or 7%, from the collective market value of the four luxury groups. Once shareholders stop panicking, they may pay closer attention to two things to evaluate the prospects of their luxury stocks.
2023-06-01 07:58:51
Article from www.economist.com