Luxury sector - News

[Dalal.Holdings]

9 hours ago, sleepydragon said:

I think Hermes is like 50+% of revenue from china. Apple is 20%

It sounds like China had replaced the European luxury automakers with their own EV brands. Does the same happen to handbags? Who knows?
 

All i Know is, the past decade or two has been great for this industry as vast number of Chinese became wealthy enough to afford these products. It was a massive tailwind. I’m not sure about the strength of the tailwind going fwd.

 

LVMH and Hermes have EVs of a quarter Trillion euros each…how big can these “exclusive” luxury brands get ?

[Hektor]

What, if any, is the impact of anti corruption drive in China on these luxury brands?

[John Hjorth]

@Dalal.Holdings,

 

Now please get real with your posts in this topic with some real information sharing, or crawl back to your own cave named 'Europe Uninvestable' with your fear mongering, 'EV' analogies unsubstanciated et. al. [, where nobody really wants to communicate with you any longer], or at least please be so kind to use primary sources in stead of  what you are providing here as sources, found by you all over the place, with likely no personal discretion at all.

 

Everybody knows this sector is challenged by now. It's actually this fact, that makes the sector as such interesting for us by now.

 

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As for LVMH, while I'm very reluctant posting specifics about LVMH in this topic, because it belongs in the separate topic for LVMH in the Investment Ideas forum, which I think you are perfectly able to decode for yourself without any guidance - perhaps also it would an idea to study how LVMH performed while China was hard CoVID-19 locked down in 2020 :

 

 

And 2024Q1 :

 

 

 

[sleepydragon]

21 minutes ago, Hektor said:

What, if any, is the impact of anti corruption drive in China on these luxury brands?

Corrupt officers got shot, but money is still flowing 

if you study Chinese history, you know "anti corruption drive" is usually due to there are too many corruptions. In Ming dynasty, thousands officers were cooked, be-headed and even skinned alive, and some still had to come to govt to work during the day and returning to jail at night (because everyone is putting into jail).. even that didn't stop corruption. 

 

and nowadays many Chinese travel to Japan to buy these.

[GorillaHunter]

I think of the posts were referring to manufacturing. On the manufacturing side, it is primarily made in Europe and/or US (LVMH has a factory in Texas) and it doesn't make sense saving a few books to manufacture in China. The issues identified at Dior are very surprising and speaks to poor oversight within the Dior brand within LVMH. 

 

I think on the Chinese demand, this is why LVMH shares are lower than pre-COVID levels. Because Chinese demand was was widely expected to come back once the lockdown finished never rebounded. I personally think we have a pretty long runway in China, especially as GDP per capital is still nowhere near western levels. Therein lies the opportunity. As I posted on twitter, Handbag sales in Japan actually continued to grow MSD post the Japan real estate bubble! I don't think we are at that level in China yet, especially as GDP per capita is like 1/4th of Japan levels whilst the population is much higher. At the peak, Japan was like 40% to 60% of luxury sales. 

 

Anti-corruption drives are a real issue and materially impacted this sector around the 2014-18 time-frame but by materially impacted, I mean the industry still grew throughout this period. Obviously, if the government were to outright ban these goods or something like that, then we'd have a problem, but that seems quite contrary to what the government is doing, especially as they have a government endorsed luxury shopping duty free hub within China called Hainan. 

 

 

 

[Dalal.Holdings]

3 hours ago, John Hjorth said:

@Dalal.Holdings,

 

Now please get real with your posts in this topic with some real information sharing, or crawl back to your own cave named 'Europe Uninvestable' with your fear mongering, 'EV' analogies unsubstanciated et. al. [, where nobody really wants to communicate with you any longer], or at least please be so kind to use primary sources in stead of  what you are providing here as sources, found by you all over the place, with likely no personal discretion at all.

 

Everybody knows this sector is challenged by now. It's actually this fact, that makes the sector as such interesting for us by now.

 

@John Hjorth here was my initial comment that seems to have triggered you so easily:

 

Quote

we are coming off peak globalization where these brands produced cheap products in cheap countries and sold it at huge markup, often to Chinese consumers looking for western cachet. I'm not sure if those tailwinds will persist going fwd. More like headwinds...

 

China may not be where the LVMH and Hermes brands make stuff, but Chinese consumers have very much been crucial consumers of the stuff. It has been a massive tailwind for the industry the past two decades. China has demographic issues now (as well as potentially economic and geopolitical) that may remove that tailwind.

 

If you can't handle comments like these about your investments, maybe it says more about your confidence in the sector. I am not sure why you are so easily offended. Perhaps it's a language barrier or perhaps it's something else...

 

If you find my comments to be so egregious, you are welcome to no longer respond or ignore me. Good luck.

[John Hjorth]

@Dalal.Holdings,

 

What I responded to, was ecactly this posted by you about 19 hours ago :

 

And I did respond to it by provinding the last data available from the company itself as primary source. Now try again telling me it's not severely biased quoting something about 38 percent, when you can exclude Japan without doing any work, other than seeking the primary source?

 

-And what about your phrasing 'burst your bubbles' in this context?

 

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The basic truth is that there must be some kind of pull back going on by now, but we really don't know the severity, nor the extent of it, by now, it's by now insider information, and there is no way to get to it for any of us, - on the last LVMH conference call almost every analyst asking questions did try to 'fish' and / or 'pump' something out of management, and giving the information is simply denied every time, when asked for it. No specific information outside what's already released in reports shared and released, what so ever.

 

These companies manage their stuff and business by meticously [totally anal, I would say] tracking and closely following their weekly sales, where every unit [shop] has to report fine meshed sales for week x minus 1 on monday in week x, so the agregate report can be on managements tables no later than tuesday morning in week x. No exceptions and no excuses for not reporting timely, or a head will be rolling somewhere. Nobody responsible for this activity go home from work without this task done monday, unless you're interested in getting sacked. Period.

 

So you have fine meshed sales data on weekly basis, compared with sales same week last year, year to date data and similar P/Y data, split-week reporting in weeks with shift of month, clear-cut monthly data with eaxctly comparable P/Y data and the whole holy-go-moly. Most likely it's all going on in a separate reporting module in the  group consolidation software maintained and driven by Agache SCA or Financiere Agache, likely running based on AARO, Hyperion, SAP or something like that.

 

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And what is really interesting to observe here in this space is that by observing financial reporting alone, it seems pretty clear already now, that the three or four leaders in the industry seem to cope very differently individually among each other with the headwinds that have arrived from beyond the horizon.

 

Naturally it has to do with brand strengths and product mix, but I have been unable to get to a coherent explanation of it. What is it with Gucci [owned by Kering] by now? - And Hermes has always somewhat been a mystery to me ...

Edited May 11, 2025 by John Hjorth

[Spekulatius]

46 minutes ago, John Hjorth said:

And I did respond to it by provinding the last data available from the company itself as primary source. Now try again telling me it's not severely biased quoting something about 38 percent, when you can exclude Japan without doing any work, other than seeking the primary source?

I would be careful to assume that Japan is totally seperate because it is experiencing a massive  tourism boom partly from Chinese tourism due to weak Yen. We know  the Chinese tourists tend to be vicarious shoppers.

 

Corruption drives have an impact on luxury goods but it’s not affecting all of them the same way. Xi Jinping first corruption drive for example impacted Ultra premium cognac sales as those special edition bottles costing thousands of $ equivalent were used as bribery tokens and that became a problem when I this became entangled with the ani corruption drive.

 

At the same time though, it seemed like equally high value MouTai liquor was Ok to use and that (imo) contributed significantly to the rise of this business so making the stock tremendously valuable while Remy etc never really recovered. So it’s kind to tough to predict which way the wind is going to blow but I think over time, the Chinese will develop a preference for domestic luxury goods over foreign ones, as they are more corruption proof.

 

 

Edited May 11, 2025 by Spekulatius

[DooDiligence]

https://rapaport.com/magazine-article/the-2024-diamond-crisis-an-industry-at-its-breaking-point/

 

https://www.jewellermagazine.com/Article/13805/Tensions-mounting-for-De-Beers-as-industry-navigates-downturn

 

===

 

In separate but related news: Signet acquired BlueNile from Bain in 2022, among other strategic acquisitions.

 

https://nationaljeweler.com/articles/11200-what-signet-s-blue-nile-acquisition-could-mean-for-the-jewelry-industry

 

https://nationaljeweler.com/articles/10253-signet-to-acquire-diamonds-direct-in-490m-deal

 

Signet acquires Service Jewelry & Repair (formerly owned by Service Merchandise)

 

Apparently BlueNile still offers consumers the best deals in high quality diamond engagement jewelry. Can't speak to current customer satisfaction but $2500 +/- for a 1 carat ideal princess cut VS2 H still looks like a great deal.

 

When I was working in Brasil I bought a number of BlueNile engagement rings for coworkers (or rather, for their namoradas). I always charged them the actual cost. I also used to deliver a lot of cellphones and laptops, and would make a token profit, which I'd pour into beer for our Sunday churrasco's, as well as other crew benefits. I'm terrible at capitalism but not a half bad socialist, but I digress.

 

The biggest drawback of buying from BlueNile has been that you couldn't go into a store once or twice a year to have a jeweler examine prongs and make sure your diamond was secure. BlueNile still offers a lifetime warrantee where you can send your piece in for an inspection and tightening, but that's not particularly convenient. This service gives a bricks and mortar jeweler the opportunity to make another sale or at the least gather a referral. Not sure why Signet doesn't tie BlueNile sales in with service at their B & M stores but it's might be due to pricing differences vs online.

 

Savvy local jewelers train sales staff to deal with prospects who come in with BlueNile engagement ring / diamond printouts. I'd be shocked if Signet owned stores weren't incentivized to convert online shoppers so both could receive the benefits of local service.

 

Either way, the diamond industry is hurting and it couldn't happen to a more deserving bunch.

 

https://sites.uab.edu/humanrights/tag/de-beers/

Edited June 1, 2025 by DooDiligence

[Spekulatius]

I guess you can raise your prices too much after all:

https://www.wsj.com/business/retail/designer-price-hikes-lvmh-chanel-58b8a941?mod=hp_lead_pos6
 

This chart is really interesting. It seems like the worst performers are those that raised their prices the most. I guess the best pricing power is the latent one that remains unused:

 

 

Edited June 1, 2025 by Spekulatius

[Hektor]

On 5/11/2025 at 12:53 PM, GorillaHunter said:

Anti-corruption drives are a real issue and materially impacted this sector around the 2014-18 time-frame but by materially impacted, I mean the industry still grew throughout this period. Obviously, if the government were to outright ban these goods or something like that, then we'd have a problem, but that seems quite contrary to what the government is doing, especially as they have a government endorsed luxury shopping duty free hub within China called Hainan. 

Anti-corruption seems to make a comeback in China.

 

https://www.wsj.com/world/china/xi-tightens-leash-on-officials-boozing-and-lavish-living-b99c96a2

 

Xi Tightens Leash on Officials’ Boozing and Lavish Living

Chinese leader revises austerity rules in bid to extend his authority and save money

[John Hjorth]

Bloomberg - Newsletter - Paris Edition [June 20^th 2025] : France’s Billionaire Kings of Bling Are Under Pressure.

 

Subtitle : Luxury brands are being hit by a Chinese slump, US tariff threats and diminishing returns from price increases.

 

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More of the same from Bloomberg. [Geez, , and no real facts or data provided ...]

[Spekulatius]

I know charts at not supposed to work, but what if MC.PA just want to work of  the COVID-19 luxury bubble - then it would go back to ~400 Euro and change? There is a gap between 400-500 Euro which means little resistance to 400 Euro according to chart astrologists. Just putting this out there to get roasted. MC would trade at around 16x earnings there, so it’s not implausible either.

 

Edited June 20, 2025 by Spekulatius

[jfan]

https://www.bain.com/about/media-center/press-releases/20252/luxury-confronts-slowdown-amid-economic-headwinds-and-market-disruptions-while-industry-resilience-and-strong-fundamentals-underpin-future-prospects/

 

Short vs longer term blip? Or the fact that this report is now out, suggest nearing market bottom?

Edited June 21, 2025 by jfan

[John Hjorth]

9 hours ago, Spekulatius said:

I know charts at not supposed to work, but what if MC.PA just want to work of  the COVID-19 luxury bubble - then it would go back to ~400 Euro and change? There is a gap between 400-500 Euro which means little resistance to 400 Euro according to chart astrologists. Just putting this out there to get roasted. MC would trade at around 16x earnings there, so it’s not implausible either.

 

 

Yeah, @Spekulatius,

 

It's striking. And it could easily go lower. No margin of safety present. It's even more striking with Kering, that has almost been killed, from almost EUR 800 to now sub EUR 200, despite hot trophy wife and all that [ ] :

 

[John Hjorth]

7 hours ago, jfan said:

https://www.bain.com/about/media-center/press-releases/20252/luxury-confronts-slowdown-amid-economic-headwinds-and-market-disruptions-while-industry-resilience-and-strong-fundamentals-underpin-future-prospects/

 

Short vs longer term blip? Or the fact that this report is now out, suggest nearing market bottom?

 

Thank you for sharing, Jerome [ @jfan ],

 

Also, I found this Bain & Company Luxury industry report, with release date 17^th January 2025 : 'Luxury in Transition: Securing Future Growth'. [Attached]

 

I personally like such stuff more than [long] stand alone narratives, because some data are actually presented for the reader, to spice up the narratives, making them more specific.

Bain Report - Luxury in transition - Securing future growth - 20250117 - 20250621.pdf

[Spekulatius]

I read this report again and here were a few things I noticed (and overlooked last time):

1) the second hand market for luxury goods is outperforming the market. this makes sense, luxury goods should be durable and online transacting becomes easier, somewhat not. This is also fueled by the younger demographics (Millenials, Gen X etc)

2) The pool of luxury buyers actually has shrunk from ~400M to ~350M. This is surprising but seems to be a result of the premiumization . So the luxury industry depends more and more on whales. Thats not great.

3) Younger Generations seem less susceptible to luxury goods than older ones, This applies to Gen X, Z. One could say that they don’t  the money, but they looked at engagement too. I think the biggest issue may have luxury cars beau e GenX,Z don’t care about cars at all. Not good. For Ferrari.

 

 

My own thought is that the luxury goods should need to morph more and more and more from sole purchases into experiences. I think this is one thing Arnault has in his mind too. LVMH as a large enterprise could have a huge advantage there as they can assemble experiences (luxury travel ?) potentially like no other.

 

[jfan]

I'm reading Adam Mead's book on Berkshire and the section(s) on See's seem quite relevant. 

1) "Fanatic insistence on expensive natural quality control and cheerful retail service"

2) Full control of its candy distribution, owning all its stores and handling distribution to those stores itself

3) Refusing to lower its unit costs if it compromised its quality and fresh ingredients

4) Ability to raise prices despite chocolate consumption per capita going down over time in addition to no ability to expand its geography

 

How does this relate to the luxury industry?

- The brands that focus on quality of product and control of the customer experience will do better than mass market/aspirational where unit costs are more important (Hermes, Goyard, ?Patek Phillipe)

- LVMH is quite diversified, has a bunch of levers they can pull (grow, shrink brands), cross-sell/advertise, that they will probably do ok in this environment

- The mid-market stuff or unfocused aspirational brands are the most vulnerable imo

[Dalal.Holdings]

23 minutes ago, jfan said:

I'm reading Adam Mead's book on Berkshire and the section(s) on See's seem quite relevant. 

1) "Fanatic insistence on expensive natural quality control and cheerful retail service"

2) Full control of its candy distribution, owning all its stores and handling distribution to those stores itself

3) Refusing to lower its unit costs if it compromised its quality and fresh ingredients

4) Ability to raise prices despite chocolate consumption per capita going down over time in addition to no ability to expand its geography

 

How does this relate to the luxury industry?

- The brands that focus on quality of product and control of the customer experience will do better than mass market/aspirational where unit costs are more important (Hermes, Goyard, ?Patek Phillipe)

- LVMH is quite diversified, has a bunch of levers they can pull (grow, shrink brands), cross-sell/advertise, that they will probably do ok in this environment

- The mid-market stuff or unfocused aspirational brands are the most vulnerable imo

 

Probably most important is Warren almost never paying more than ~15 times earnings for anything

[John Hjorth]

15 minutes ago, Dalal.Holdings said:

Probably most important is Warren almost never paying more than ~15 times earnings for anything.

 

@Dalal.Holdings,

 

Different times, different strokes.

 

If Munger and Buffett actually would, they could also have built a luxury sub empire inside Berkshire, but these two gents never had the mindset needed for that, nor were they interested in doing so.

 

It's about the understanding of intangibles and when to calculate ROIC including intangibles, and when to calculate ROIC excluding intangibles.

[Dalal.Holdings]

https://finance.yahoo.com/news/gucci-owner-kering-posts-46-170236823.html

 

Quote

Gucci owner Kering posts 46% profit slump before new CEO arrives

 

Gucci has its own issues, but the entire sector not looking too hot

[Milu]

2 hours ago, Dalal.Holdings said:

https://finance.yahoo.com/news/gucci-owner-kering-posts-46-170236823.html

 

 

Gucci has its own issues, but the entire sector not looking too hot

Yes things are going pretty badly in luxury right now. Possibly one of the most disliked industry at the moment. Potentially means good value to be had for long term investors if you believe that people will eventually go back to consuming luxury items in a big way or not. I personally believe they will.

[jfan]

Hermes has their earnings call the other day. They grew a bit relative to their competitors but when asked about China, axel said there is no immediate signs of a turnaround. The customer there is still quite cautious. 

[John Hjorth]

50 minutes ago, jfan said:

Hermes has their earnings call the other day. They grew a bit relative to their competitors but when asked about China, axel said there is no immediate signs of a turnaround. The customer there is still quite cautious. 

 

@jfan,

 

We should definitely have a separate topic in the Investment Ideas forum for Hermes International SA to discuss the company.

 

It's so striking how the different companies in the top of this sector are evolving and doing recently.

[Cod Liver Oil]

https://www.prnewswire.com/news-releases/l-catterton-acquires-kisshokichi-the-worlds-largest-kobe-beef-restaurant-chain-302519149.html
 

@John Hjorth how do you feel about beef? I’m thinking Richemont has the most solid position in luxury now and could make it large after some more bruising. 

Edited August 1, 2025 by Cod Liver Oil