A model walks the runway at the Burberry show during London Fashion Week.
Many of the developing countries in emerging markets, especially in Asia, have experienced rapid GDP growth and increasing wealth over the past decade. Growing wealth coupled with rising disposable incomes has led to a steep rise in demand for luxury goods and services.
China, India and Indonesia are three of Asia’s largest emerging economies with a combined population nearing 2.75 billion and a combined GDP exceeding $US10 trillion. Indonesian GDP per capita crossed $US3500 in 2013. This is expected to kick-start higher growth in discretionary spending.
Rising disposable incomes of the middle class lead to higher buying power and more demand for aspirational goods. So, it is no surprise that we see new showrooms for brands like Gucci, Prada and Louis Vuitton popping up in Mumbai, Jakarta and Shanghai.
With the ease of online stockbroking Australian investors are now much more willing to buy overseas stocks: if you are looking to get exposure to this long-term trend in demand for luxury goods in Asia, luxury stocks are worth considering.
While the consumers are in Asia, the brands people look up to and aspire for are usually from US or Europe.
Designer bags, alcoholic beverages, jewellery and designer clothing are some of the diverse products we get in this sector: Here’s four top international stocks from the luxury sector.
These are just four of the biggest luxury names available outside the ASX.
Burberry Group
Burberry Group designs, manufactures and distributes luxury apparel and accessories. Products include clothing for men, women and children, handbags, shoes, scarfs, leather goods, fragrances, eyewear and watches with a clear and distinctive pattern and style under the Burberry brand name. Burberry has branded stores and franchises around the world and sells through concessions in third-party stores while it still operates a small apparel licence with Sanyo in Japan.
Established in 1856 by Thomas Burberry, originally focusing on the development of outdoor attire, the fashion house has moved on to the high fashion market developing pattern-based scarfs, trench coats and other fashion accessories. The brand is worth $US4.6bn and is the seventh most valuable luxury brand worldwide.
Hermes International
Hermes International SCA, Hermes of Paris, or simply Hermes is a French high fashion luxury goods manufacturer established in 1837.
Its logo, since the 1950s, is of a Duc carriage with horse. As at the end of 2015, Hermes employed 12,244 people worldwide and had 307 exclusive stores, 210 of which were operated directly.
Hermes has 14 product divisions encompassing leather, scarves, ties, menswear, women’s fashion, perfume, watches, stationery, footwear, gloves, enamel, decorative arts, tableware and jewellery.
Hermes derives about 45 per cent of sales from leather goods, 23 per cent from ready to wear clothing and accessories, and 12 per cent from silk & textiles (mostly scarves).
The company does not license its products and keeps tight control over the design and manufacture of its vast inventory.
Hermes’ four largest markets are China (20 per cent of sales), France (14 per cent of sales), the US (13 per cent of sales) and Japan (12.5 per cent of sales).
Compagnie Financiere Richemont
Compagnie Financiere Richemont is a Switzerland-based luxury goods company founded in 1988 by South African businessman Johann Rupert.
Through its various subsidiaries Richemont designs, manufactures, distributes and sells premium jewellery, watches, leather goods, writing instruments, firearms, clothing and accessories.
Richemont’s brands include Cartier, Van Cleef & Arpels, Piaget, A. Lange & Sohne, Vacheron Constantin, IWC, Jaeger LeCoultre, Montblanc, Dunhill, Lancel, Chloe, Shanghai Tang and Peter Millar along with a 49 per cent stake in online fashion retailer Yoox Net-A-Porter Group.
Richemont’s jewellery business represents 54 per cent of revenues and is also the most profitable.
The second largest segment, specialist watchmakers, is 30 per cent of revenues and has margins around 23 per cent. Geographically, China is Richemont’s largest market, representing over 21 per cent of revenues. Richemont is the second-largest luxury goods company in the world after LVMH.
LVMH Moet Hennessy Louis Vuitton SE
LVMH is the world’s largest luxury goods conglomerate and a dominant player in the global luxury goods market.
Through its Louis Vuitton segment, it makes and sells high-end leather goods, luggage and accessories.
It produces champagne under the brands Moet & Chandon and Veuve Clicquot.
LVMH also offers cognac through the Hennessy label. The company manufactures perfumes, cosmetics, watches and jewellery, as well as haute couture through its Christian Dior, Marc Jacobs and Loewe brands.
The company controls over 60 brands. Recognisable names include Krug and Dom Perignon Champagnes, and apparel brands Loro Piano, Thomas Pink, and Australia’s RM Williams.
LVMH’s brand portfolio also has names like Bulgari, Tag Heuer, De Beers Diamond Jewelers, and Zenith in watches and jewellery.
Guerlain, Pafums Givency, and Kenzo Parfums are its flagship brands in perfume and cosmetics.
On top of that, LVMH also owns DFS (Duty Free Stores), Le Bon Marche (the iconic Paris department store) and apparel & cosmetics retailer Sephora.
Geographically, LVMH revenues are more skewed to the US market (27 per cent of sales). China is 14 per cent of sales and France is 10 per cent of sales.
This is just an introduction to the leading luxury brands that are available to Australian investors.
But perhaps the most important takeaway is that local investors must go in search of overseas markets to access this investment sector — because it is not represented in any significant way on the ASX.
By Clay Carter Courtesy The Australian