Luxury goods stocks suffer setbacks, raising questions about their future prospects
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In the world of luxury goods, the current economic climate presents a mixed picture. While global sales have experienced their weakest performance since the 2008 financial crisis (excluding COVID years), with a projected further 2% to 5% decline in 2025, there is a glimmer of hope for patient, value-oriented investors.
This cautious optimism is largely due to the historical rebound that the luxury sector has shown after similar slumps. According to Bain & Company, the luxury market is expected to recover after a cyclical downturn.
One factor contributing to the current subdued demand is the ongoing Chinese real-estate crisis. The slowdown in luxury sales is partly linked to economic pressures in Asia, particularly China, which is a key growth driver for luxury brands. The ongoing uncertainty in the region has affected consumer confidence and spending.
However, despite these headwinds, luxury shares remain fairly valued, and companies like Kering, Swatch, Burberry, Hugo Boss, and Capri Holdings are considered undervalued by some analysts, offering potential investment opportunities.
Luxury brands are adapting to meet changing consumer expectations. The focus is shifting towards authenticity, sustainability, and new purchase experiences such as rentals and certified pre-owned products. This innovation may help luxury companies remain resilient amid shifting market dynamics in Asia and globally.
In the midst of this, larger firms like LVMH and Hermès are positioning themselves for growth. Yawen Chen on Breakingviews believes that the pain in the sector creates an opening for stronger players. LVMH, for instance, is not showing weakness by introducing new designers at Celine, Fendi womenswear, and Givenchy.
Moreover, larger firms can still "scoop up bargains" by entering into partnerships or buying out smaller firms that have seen their shares perform poorly. If rivals are less able to compete, LVMH could take advantage and invest in areas where it has "white space".
In conclusion, while the near-term outlook is challenged by Asia’s economic uncertainties and the Chinese real-estate crisis, luxury goods companies may present attractive investment opportunities for those anticipating a cyclical recovery and successful adaptation to consumer preference shifts. A website subscription offers exclusive early access to news, opinion, and analysis from the financial experts on the website.
Investing in the luxury sector could be an attractive opportunity for patient, value-oriented investors, as luxury brands adapt to meet changing consumer expectations and the luxury market is expected to recover after a cyclical downturn. Some analysts view companies like Kering, Swatch, Burberry, Hugo Boss, and Capri Holdings as undervalued, offering potential investment opportunities. Larger firms, such as LVMH, could take advantage of the current market dynamics by investing in areas where they have "white space" and entering into partnerships or buying out smaller firms with underperforming shares.
