SALES UPDATE 06.29.22
June stood as a difficult month for the stock market: recession fears dominated and buyers rushed to sell. However, in at least the last week or two, recession fears have begun to decrease. As inflationary pressure recedes the market is starting to show signs of life again.
Disruptions in the fashion market are expected to even out in the remainder of 2022, and the industry is set to grow by 3% to 8% in the next year—surpassing 2019 levels. Recovery is expected to be strongest across China and the U.S., while Europe, still under lockdown restrictions and rising case numbers, will lag behind.
Price Hikes and Spikes:
Due to supply chain issues and factory closures, the cost of materials and manufacturing has largely increased in recent months. Two-thirds of fashion executives said they are expecting to increase prices in 2022, with an average price increase of 3% across all clothing and apparel. Inflation in fashion is caused by a combination of material shortages, transportation bottlenecks, and rising shipping costs straining supply and demand.
The luxury fashion market, however, remains set for growth. The continued resiliency of the world’s wealthiest people has kept luxury brands afloat amongst the price spikes retailers around the rest of the world are dealing with.
Virtual Fashion and The Metaverse:
The “metaverse” is a particularly lucrative market that fashion retailers are quickly racing to tap into. Creating and selling NFTs of clothing, and allowing gamers to buy, keep, and trade virtual fashion products—also known as “social commerce”—is expected to grow in 2022, with 37% of fashion executives saying it would be one of the top three things that will impact their business next year. The metaverse is a completely new and alluring market for fashion companies as it offers opportunities for audience growth and income generation for fashion brands—without sewing a stitch.
Stocks to Watch:
The United States may very well be hurtling toward a recession and the NASDAQ is suffering its worst 100-day performance on record. However, luxury spending is up 14% year to date. With the continued rise in the prices of materials and goods, the following luxury stocks are worth noting as investments.
LVMH (ticker: LVMUY)
Share price: $125.02
Market Cap: $312B
VMH Moët Hennessy Louis Vuitton, commonly known as LVMH, is a French holding multinational corporation and conglomerate specializing in luxury goods, headquartered in Paris. The company was formed in 1987 through the merger of fashion house Louis Vuitton with Moët Hennessy. In 2021, with a valuation of $329 billion, LVMH became the most valuable company in Europe. LVMH subsidiaries include Christian Dior, Fendi, Givenchy, Marc Jacobs, Stella McCartney, Loewe, Loro Piana, Kenzo, Celine, Sephora, Princess Yachts, TAG Heuer, Bulgari, and Tiffany & Co.
For LVMH, Inflation isn't a problem at all, but more a possible catalyst for the company. High-end luxury items are investments and collectables. LVMH had a good start in 2021, which was still affected by COVID and limited internal travel. All business segments contributed to organic revenue growth except Selective Retailing. Revenue in Q1 of 2021 was up 32% compared to 2020 and +11% compared to 2019.
RICHEMONT (ticker: CFRUY)
Share price: $10.68
Market Cap: $60.95B
Compagnie Financière Richemont SA, or Richemont, engages in the design, manufacture, and distribution of luxury goods. They operate through multiple segments including Jewelry Maisons, Specialist Watchmakers, Online Distributors, etc. Notable companies they produce through include Cartier, Van Cleef & Arpels, Piaget, and Chloé. The company was founded by Johann P. Rupert in September 1988 and is headquartered in Bellevue, Switzerland.
Jewelry is the most attractive segment within the luxury goods space as it holds its value as the price of material increases. Wealth accumulation within the (ultra)-high-net-worth and affluent middle-class population supports a faster shift from non-luxury jewelry into luxury jewelry, and also into branded jewelry- directly benefiting Richemont as a No. 1 player.