Luxury Brands Are Helped By a Lack of Other Spending Options--Heard on the Street
April 14 2021 - 9:11AM
Dow Jones News
By Carol Ryan
For an industry traditionally dependent on tourism and consumer
optimism, many luxury brands have done surprisingly well during the
pandemic. A caveat is that shoppers will soon have more choice
about where to spend their cash.
The world's biggest luxury company, LVMH Moët Hennessy Louis
Vuitton, said late Tuesday that sales increased by a remarkable 30%
in the three months through March compared with the same period of
2020, stripping out the impact of exchange-rate and portfolio
changes. That isn't just the effect of the pandemic sweeping across
the world early last year: LVMH also said its first-quarter sales
were up 8% on the same apples-for-apples basis versus the same
period of pandemic-free 2019.
The numbers, which easily beat analysts' forecasts, lifted the
Paris-listed stock 3% Wednesday morning. The relatively modest
reaction follows steep gains in recent months that have made the
owner of Louis Vuitton and Christian Dior Europe's most valuable
listed company, a position long occupied by Swiss food giant
Nestlé.
LVMH has been well managed during the crisis. It took advantage
of strong demand for its goods in Asia, where sales increased by
86% in the first quarter. The business renegotiated rents in its
stricken travel-retail unit and spent on marketing when rivals
trimmed back.
But it also got a boost from consumers' lack of options. The
closure of hotels, expensive restaurants and a slump in
international travel meant wealthy shoppers have been forced to
consume goods rather than services. Management said parts of the
business also benefited from fiscal stimulus: Americans spent
lavishly on its cognac and champagne brands, contributing to 23%
overall growth in the U.S. during the first quarter.
There is still plenty of pent-up cash. The U.S. savings rate was
13.6% in February, compared with 8.3% in the same month of last
year, according to the Bureau of Economic Analysis. Lockdowns have
also pushed up Europe's savings rates. The risk for fancy handbags
is that shoppers will have more choice about how to part with that
cash as economies reopen.
Europe's top luxury companies, LVMH, Kering, Hermès and
Compagnie Financière Richemont, have defied dire predictions a year
ago that the industry would take a long time to recover. The issue
for new investors is that the stocks are at records at a time when
other industries may start revving up. Luxury brands are currently
enjoying more than their fair share of consumers' wallets.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
April 14, 2021 08:56 ET (12:56 GMT)
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