Sales Soar in the Luxury Sector – Will the Trend Continue?

Today’s uncertain economy has retailers scrambling to adjust to cautious consumer spending habits. Despite this trend, luxury brands are experiencing a banner year as high-end goods disappear from the shelves, even at marked-up prices. Luxury companies are reporting solid sales gains this year, with several even beating analyst estimates. LVMH, the maker of brands like Givenchy, Celine, and Tag Heuer, reported a first-half profit increase of 25% or $1.9 billion.

It may seem impossible that there is a four-month waiting list for a pair of $4,300 tortoiseshell sunglasses from luxury brand Maison Bonnet, but luxury shoppers are proving more and more willing to pay for such items. What’s driving this growth? Luxury brands credit international consumers with much of their success. Demand in Asia for luxury goods continues to grow and many retailers are expanding their operations in these countries. Additionally, high prices often translate to high quality—a factor that influences many to spend big.

Confident consumers mean confident retailers as sales successes and replenished cash reserves fuel M&A and IPO activity within the luxury sector. Dealmaking has returned to the sector with several high-profile deals showcasing luxury retailers’ new focus on expansion:
  • European IPO Activity: On June 29, Italian fashion house Salvatore Ferragamo held its IPO in Milan, with shares rising over 8% despite the tough European market. Brunello Cucinello, maker of cashmere clothing, is expected to hold its Milan IPO in October.
  • HKEx IPO Activity: The Hong Kong Exchanges & Clearing Ltd. is an increasingly lucrative market for luxury IPOs – yet another indication of the impact of the emerging Asian market on the luxury sector’s growth. Prada SpA held its Hong Kong IPO on June 17, raising $2.14 billion.  L’Occitane and Samsonite have recently been listed on the exchange, and Ducati and Coach are said to be considering HKEx listings of their own.
  • M&A: LVMH acquired jewelry maker Bulgari in March for $2.5 billion. The company also recently purchased a stake in Hermes. In May, luxury goods group Labelux acquired shoe maker Jimmy Choo for an estimated $812 million.
  • Distribution deals: As focus centers on the Asian market, many companies are signing joint-venture deals or distribution agreements to increase their exposure to Asian consumers.
Despite steady gains, luxury retailers still face dangers. The tremendous sales growth experienced by luxury brands is largely a result of international expansion. Yet the volatility of global markets could prove troublesome for luxury retailers as the struggling Asian and European markets begin to impact international consumers.

Do you have predictions for the future of the luxury sector?