A Hermès Trend Other Luxury Brands Hope to Copy -- Heard on the Street
By Carol Ryan
Wealthy people used to buy designer goods on their travels. Now
they might be buying them because they can't go anywhere.
On Thursday, French handbag maker Hermès became the first major
luxury-goods company to report a return to growth in the third
quarter. Sales at constant currencies increased 7% compared with
the same period of last year. Analysts covering the stock had
anticipated a slight decline.
The Chinese are driving most of the recovery, but not all. The
level of demand from local European and U.S. consumers in the
summer was a surprise at both Hermès and its Parisian peer LVMH
Moët Hennessy Louis Vuitton, which reported its third-quarter
numbers last week. In its Americas region, Hermès sales were just
5.2% below their level a year ago, even though the brand's Hawaii
boutiques have been closed since August. European buyers are also
offsetting some of the drop in demand from tourists in Hermès' home
The severity of the Covid-19 pandemic and travel restrictions in
the West mean cash that would otherwise be spent on holidays or in
restaurants is finding its way into the tills of designer brands.
Consultants at Bain have forecast a sales decline of 20% to 35%
across the global luxury-goods industry in 2020. If shoppers have
fewer opportunities to spend on experiences, the high end of that
range may be too pessimistic.
"The idea that we would have to wait a few years for luxury
brands to get back to 2019 levels was wrong," says Bernstein
analyst Luca Solca.
For now, investors are betting that the biggest luxury brands
will hoover up all the spoils. Hermès stock is up 23% this year.
LVMH, whose most important assets are Christian Dior and Louis
Vuitton, has gained a more modest 4% as its duty-free retail and
cosmetics businesses are highly exposed to airports.
The bet on top brands has form: They have grown much faster than
the luxury-goods industry as a whole in recent years. Still, signs
that shoppers are buying again in mature markets might be positive
news for the laggards too. Shares in Burberry and Compagnie
Financière Richemont, which owns Cartier as well as lots of smaller
Swiss watch brands, are down around one-third and one-fifth
respectively this year. They may have more potential to surprise
investors than blue chips such as Hermès, whose stock rose 3%
Selling to Chinese consumers is still crucial if luxury brands
want to dig themselves out of their hole. But the recovery should
be faster if shoppers close to home are splashing out too. Hermès
and LVMH's flagship leather-goods division might not be the only
ones to benefit.
Write to Carol Ryan at email@example.com
(END) Dow Jones Newswires
October 22, 2020 08:53 ET (12:53 GMT)
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