hnnhcronin With a large part of the retail sector in a period of turmoil, unable to adjust to the changing shopping habits and desires of the millennial consumer, three big luxury conglomerates stand strong. LMVH (LVMH), Richemont (CFR) and Kering (KER) have seized on that turmoil to differentiate themselves from the crowd: and all three stocks reflect these companies’ execution. The product offerings of the companies of LVMH, Kering, and Richemont are not particularly comparable to US-based “luxury” brands in that American brands represent “accessible luxury”, whereas the likes of Louis Vuitton, Gucci, and Cartier charge premium prices and represent a more exclusive lifestyle. Certain factors have contributed to the success of all three conglomerates, including the dramatic spike in consumption from China–the most important market for luxury goods–innovative young designers at the flagship brands, and the relatively weak euro (however, the euro is gaining value, which could decrease consumption of these European luxury goods from tourists as the exchange rate increases). Despite the commonalities, each luxury house has pursued various growth policies that have contributed to their current successes.
LVMH: LVMH reported first quarter sales for fiscal 2018 on April 9th. LVMH reported revenues of 10.85 billion euros, or $13.4 billion, which is up from last year. Large Chinese demand has played an important role in this higher than expected growth. The Louis Vuitton brand has performed especially well thus far this year sales-wise according to the company. The purses are youthful and modern, while maintaining their classic Louis Vuitton logo and shape.
Richemont: The Swiss-owned luxury group, known for their assortment of watch and jewelry companies, recently announced its offer to purchase the shares of the Yoox Net-a-porter e-commerce company that it does not already own. In October 2015, Richemont facilitated the merger between the online shopping platform for luxury clothing and accessories, Net-a-porter, and Yoox group, which similarly sold overstocked designer goods. Now, with the ever-increasing importance of a strong online retail presence, Richemont–already the majority shareholder– offered to purchase the remaining shares for 38 euros each and to operate Yoox Net-a-porter as a separate entity. The online fashion retailer reported higher net revenues for 2017 and expects continued growth in the coming quarters.
Kering: While Kering experiences the same benefits from high luxury demand as LVMH and Richemont, much of Kering’s recent success can be attributed to the consumer craze over Gucci. Alessandro Michele, head creative director of Gucci, has transformed the company into the “it brand” among the younger generation of shoppers. The bright colors and wild prints offer a more youthful alternative to the typically more polished clothing of other high end brands. In addition to the popularity of its brands, Kering also announced its offer to repurchase 405 million euros worth of bonds trading on the luxury stock exchange maturing in 2019, 2020, 2021, and 2022. News of the success of this plan increased investor confidence about Kering’s liquidity management, causing the stock to jump over the past week.
Both Kering and Richemont expect strong quarter 1 results, both of which will be announced in the next 1-2 weeks.
