Elite Inside Trader

With global stock markets performing well since the economic recovery began in 2009, luxury brands are seeing plenty of green.  Sales are increasing (especially in emerging markets), new stores are being opened, and companies are launching IPO’s to raise brand awareness with investors.  Here’s why we see the luxury fashion markets as a smart place to invest in right now:

Fantastic Sales Growth and Future Outlook

High end jewelry and clothing companies have performed well in Q1 2011, as LVMH (makers of Louis Vuitton products), Burberry, PPR, Saks Inc, Tiffany & Co. and Tod’s all soundly beat market earnings expectations in their respective stock exchanges.  These were all lead by Burberry (BRBY: LSE), which saw a 39% jump in profit for the year ending March 31 and Tiffany & Co (TIF: NYSE), which saw a 25% rise in net profit in Q1.  The two biggest contributors to this resurgence of the luxury sector post-crisis are a rebound in U.S. luxury spending (the world’s largest luxury consumer market) and continuing fast-paced growth in emerging luxury markets like China, India, and Brazil.  Luxury spending in the United States grew by 16% in 2010 to reach $68 billion, bringing global luxury spending up to $237 billion and edging out 2007 as the highest spending in world history in the luxury sector.  The ever-popular emerging markets are being heavily targeted by luxury brands Burberry, which will open up 25 new stores in these emerging markets, and Tiffany & Co., which has plans to launch 19 new stores globally.  With Mainland China seeing a 30% growth in luxury goods consumption (and watches and jewelry seeing a 40% uptick for Greater China, which includes the Mainland, Taiwan, Hong Kong, and Macau) from 2009-2010, its no surprise why luxury brand companies are trying to move as early as possible to strategically place themselves in the minds of Chinese consumers.  These luxury retailers are famous in China for the lines that form outside of their flagship stores, filled with eager consumers to get their hands on the latest offerings of big brand stores.  Luxury goods makers are also typically able to pass on the current rises in commodity and input costs to consumers a little easier than most sectors, as demand for luxury items is typically much more inelastic and isn’t as volatile with rising prices.

IPO Plans for the Hong Kong Stock Exchange

Prada, Samsonite, Burberry and Coach have all announced their plans to seek a share listing in Hong Kong.  These listings come as they try to raise brand awareness in order to tap into China’s growing luxury market.  Following the success of cosmetics giant L’Occitane Internationale’s $840 million raising IPO in 2010, the luxury brand companies are looking to gain investors, suppliers, and customers confidence in the markets where their goods are seeing the highest sales growth potential in the near-term.  As the luxury brand sector further makes it mark in Asian markets, the wise investor should at least begin tracking these companies, if not buy shares in those that are already listed.

As luxury consumer spending picks up across developed and emerging markets alike during the current bull market, expect luxury brands and companies to see further growth and returns on their shares.  We are looking at Burberry (BRBY), Tiffany & Co. (TIF), and LVMH as the three retailers in the best position to take advantage of this growth now.

IMPORTANT NOTICE: "Any information we give you is not our recommendation or advice to take (or not to take) any particular course of action in relation to your investments. You should take your own independent advice based on your specific circumstances."

Tags: BRBY.L, Burberry, China, Coach, Hong Kong, IPO, Louis Vuitton, Luxury Goods, LVMH, Macau, PPR, Prada, Saks Inc., Samsonite, Taiwan, TIF, Tiffany & Co., Tod's