A strong presence in Asia

One of the key factors contributing to luxury brands‘ success is their strong presence in Asia. In the case of Hermès International SCA, which has luxury leather goods, home accessories, jewellery or watches in its portfolio, we have seen that sales in Asia, particularly in China, have remained very dynamic despite the increased number of COVID-19 cases. This success is a stark contrast to their competitors such as LVMH Moët Hennessy Louis Vuitton SE, which has seen more moderate growth in the Chinese market. Asia, and the Chinese market in particular, is becoming an important source of growth for these brands. Their ability to maintain demand in this region thus provides them with a stable base in difficult times.

Renewed interest in luxury products

Another factor supporting their stable market position is consumer interest in luxury products. Surprising as it may sound, studies show that in times of economic hardship, demand for luxury brands does not diminish. The truth is that some consumers may choose to invest their money in quality products that are long-lasting and that make them feel luxurious. Hermès, Kering and LVMH all offer such products and have maintained the loyalty of their customers even in times of adversity.

Revitalising tourism

Luxury brands were significantly affected by tourism decline during the COVID-19 pandemic. However, as tourism gradually recovered, brands such as Hermès, LVMH and Kering were able to count on renewed tourist interest in their products. Shops in airports and duty-free zones have again experienced growth, contributing to their overall success. International tourism is slowly recovering and brands with a strong presence in these areas have an advantage in attracting customers.

Exceptional quality and exceptional brands

Finally, the success of these luxury brands can be attributed to their exceptional quality and reputation. Hermès, LVMH and Kering are known for their exceptional products, such as handmade Birkin handbags and exclusive pieces by Louis Vuitton and Dior. These brands maintain high quality standards and customers are willing to invest in products that represent icons of luxury and style. Their renowned name and long tradition give them a competitive advantage that contributes to their continuous growth despite negative factors.

Investing

These brands show us that the luxury segment of the market can be stable and resilient to turbulent events when it is based on value, durability, quality and excellence, as evidenced by their stocks‘ performance. On this basis, it is certainly worth considering their inclusion in an investment portfolio. Looking at five-year performance, LVMH's share price has strengthened significantly, but is down nearly 10 percent year-to-date as of early May, June 15, which may present an ideal opportunity to buy at a discounted price.[1] The situation is similar for Hermès shares. They are up 35 percent in value since the beginning of the year. Kering shares have been relatively stable since the beginning of the year with no major movements. Nevertheless, the company is still in an attractive position.

Chart 1: Evolution of LVMH´s stocks over five years*

Chart 2: Evolution of Hermès´s stocks over five years*

Chart 3: Evolution of Kering’s stocks over five years*

Adam Austera, principal analyst at Ozios

* Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.