Despite the crisis: that’s why luxury companies are booming

Precious jewellery, luxury watches, prom dresses – everything that has status and reputation in the world of luxury is exclusively a matter for the haute volée, high society or the well-to-do nobility, as the financially well-to-do upper class is also called in our part of the world. Because wealthy people tend to stay rich or even get richer in times of recession, the luxury goods business is a stable, resilient business.

Luca Solca, a long-time luxury goods industry observer employed by US asset manager Bernstein, said “this idea is a myth” born out of society’s false perspective of wealth. “The modern luxury goods markets are supported by a large class of consumers that goes far beyond the affluent class. And the rich also see their wealth in relative terms,” explains the financial analyst and equity expert.

A simple but meaningful conclusion for investors emerges from his observations: Demand for luxury goods is cyclical. The same applies to the demand for shares in luxury goods manufacturers. They are subject to strong fluctuations, depending on the direction in which economic development is currently evolving.

However, the current situation seems to refute Luca Solca’s findings. Despite serious threats to the international security environment, continued high inflation and the associated pressure on central banks to further raise interest rates and curb economic growth, the luxury goods industry currently appears to be extremely robust.

In mid-May, the Richemont group from Geneva surprised with record results. Previously market leader LVMH did the same. Richemont’s president and majority shareholder, Johann Rupert, who is rather cautious, was also unusually optimistic when he emphasized the (financial) resilience of his customers and the strength of his brands a few days ago.

“We live in unstable times, but our business is surprisingly stable,” said Swiss jewelry and watch retailer Raphael Gübelin of the unusual situation. The Gübelins have been active in the luxury goods business for six generations. The Lucerne-based company has about 200 employees and runs its own jewelery workshop, maintains six shops at various hotspots in Switzerland and, in addition to its own fine jewellery, also sells various watch brands in the highest price ranges. Gübelin: “Demand in the luxury goods market fluctuates less with the economy than in other sectors, but is also not resistant to fluctuations.”

But there are developments that seem to give the market more stability at the moment. “The demand for branded jewelery has increased significantly in recent years,” says Gübelin. “Well-known jewelery brands offer a strong design with a recognition effect.” Gübelin speaks of luxury jewelry in the price segment of four to five figures – and means rings, bracelets or necklaces set with precious stones worth up to 15,000 francs.

This democratization of the jewelry trade, as described by Raphael Gübelin, has a lot to do with the economic rise of China, where a large upper middle class has emerged over the past 25 years. This social class flaunts status symbols with its economic progress and is also likely to make a significant contribution to the strong polarization of the luxury goods industry observed over the past 20 years with its consumer behavior. With LVMH, Kering and Richemont, multinational companies have emerged that have differentiated themselves from their former competitors in less than two decades (see table).

Gübelin says interest in jewelery has increased in recent years in general and in industrialized countries as well. A new generation of jewelers, designers and, of course, consumers are taking a more playful approach to precious stones and metals, the combination of which had to comply with strict conventions in the past.

In the current year and especially in the coming year, many luxury goods retailers expect the return of this broad Chinese customer base, not only in Western European consumer capitals, which may partly explain the good mood in the industry and the high valuations of luxury goods. shares on the stock exchanges. Richemont, LVMH, Hermès – the shares of numerous luxury brand manufacturers have reached record levels in recent weeks.

Of course, this stock market boom can only have a lasting effect on those investors who firmly believe in a special secular boom in the luxury goods markets. In addition to the demographic aspects, the argument has long been heard that the demand for expensive jewelery is also driven by the intrinsic value of these goods, especially in times of inflation. Financial analyst Luca Solca thinks that this factor does not play a major role. Raphael Gübelin, on the other hand, sees an aspect that customers know well, especially when it comes to valuable gemstones.

Against this background, Gübelin’s Gemstone Laboratory, which celebrates its 100th anniversary this year, developed a service several years ago with the launch of the “Gemstone Rating”, which translates the complex parameters of colored gemstones into an easy-to-understand point value and the This offers buyers more orientation and comparability when making a purchase.

The demand for this service is particularly high in Asia, says Gübelin. But does it have anything to do with inflation? Officially, inflation in China is hardly a problem. But perhaps the concern about the value of their own currency is subliminally present in the upper class. This phenomenon is clearly one of many that make the current boom in luxury goods markets so difficult to explain. (aargauerzeitung.ch)