Luxury’s unstoppable run

At the end of the 1990s, when Lvmh and Pinault-Printemps-Redoute (PPR) (the current Kering, ed.) were competing to buy Gucci, sector experts stated that the maximum profit for a luxury brand would be 2 billion euros. Today, that figure has been far exceeded by brands such as Chanel, Louis Vuitton, Hermès, and the maison of the double G itself. In 2021, Gucci registered 9.73 billion euros in profit, more than half of Kering’s entire turnover, which amounts to 17.6 billion euros. But it does not end there. Regarding the Florence-based brand, the French giant with François-Henri Pinault at the helm, indicated that they are aiming at 15 billion in sales in the medium term. The medium-term goal for Saint Laurent is to double the profit, going from the current 2.52 billion euros to 5 billion euros. The group wants to increase its profitability, aiming at a 33% ebit, compared to the 28.3% ebit of 2021. Furthermore, Kering also wants to double its eyewear division’s profit, making it reach 2 billion euros. «The luxury good demand was steady in these months, despite China’s blockades. The rest of the world had an acceleration, mainly Europe and other Asian countries, to the extent that it was able to compensate the 30-40% of China. This means that it is unlikely that sector and big players will slow down», Bank of America (BofA)’s analysts told MFF.

According to the American experts, the brands that will experience a major push, next to Gucci, are Lvmh, Richemont and Prada. Bernard Arnault’s Fashion and leather goods division will experience an increase of 20% in profits this year, with Louis Vuitton and Dior in the lead. «We also estimate that, by 2023, Lvmh will have a liquidity of about 25 billion euros that could be used for more mergers and acquisitions», the analysts stated. Cartier and Van Cleef & Arpels, jewelry maisons that are part of Richemont, are also expected to greatly increase their reveneus and profitability. But it does not end there. «By 2025, we expect sales to increase by 50% and ebit margin to double for Prada», BofA analysts stated, expecting revenues to increase with a cagr of +10% to 5 billion euros across volume and price. «The growth of the luxury sector will very much depend on how the zero-Covid-19 policy in China changes in the upcoming months», Luca Solca, senior research analyst, global luxury goods at Bernstein, explained to MFF. Should the blockades gradually shrink, Solca expects the entire luxury industry to grow by 20% by 2023. Among the brands that will drive sales are, in addition to those already mentioned, Moncler and Farfetch.

According to Bain & Company, the luxury industry understood as personal goods (fashion clothing and jewelry, ed.) is worth nearly 300 billion euros globally. But how did it get to this point? Over the past two or three decades, luxury brands have ridden the wave of globalization, initially focusing on Japan, followed by North America and then Brazil, Russia, India, and China, with a strong emphasis on the latter. «In fact, China has been the main growth driving force of the industry for almost 15 years», the experts clarified. In addition to China, there is still some growth potential in North America, as well as significant opportunities in India, where some rating firms predict that luxury goods sales will increase from 5.94 billion dollars (equivalent to about 5.93 billion euros at yesterday's exchange rate) in 2021 to more than 200 billion dollars (about 199 billion euros) in 2030. Other markets such as Brazil (luxury sales of 2.67 billion dollars, or about 2.66 billion euros, with growth prospects for 2022 of less than 2% per year) and Indonesia (luxury sales of 1.66 billion dollars, or about 1.65 billion euros, with growth prospects for 2022 of nearly 4% per year) have yet to perform, but they represent great long-term opportunities. Another driver has been diversification. The ambitious nature of luxury has allowed brands to expand into cosmetics, perfumes, eyewear, small leather goods and accessories. This has been the business model adopted by a plethora of brands, such as Chanel, Louis Vuitton, Dior and Gucci. Over the past decade, top brands have also developed watch and fine jewelry offerings. Now there is potential to open up to new categories in the metaverse with virtual goods. (All rights reserved)