In the past few weeks, several luxury (watch) groups have published their latest earnings. All groups posted positive results and optimistic forecasts. These luxury groups tend to have a wide variety of luxury categories in their offering, not limited to luxury watches. We can see that groups with strong ‘other’ categories in their portfolio fared much better than the less diversified competitors. In addition, we also note that the profits were mainly due to stellar sales in these ‘other’ categories.
As noted in the charts above, we can see that everyone had left the pandemic era slump behind by the end of 2021. Both Richemont and LVMH even outperformed the S&P 500. LVMH in fact absolutely crushed it. On the other hand, Swatch Group (marked in blue above) is still underperforming when compared to the other groups and the market in general.
The reasons for the strong performances are varied but never actually found in the ‘watch’ category alone. At LVMH the biggest earners were fashion brands, Louis Vuitton and Dior. At Richemont, it was the jewelry category that took the crownCrown The knob on the outside of the watch that you typically use to either wind the mainspring or set the time [Learn More]. Swatch Group however does not have such categories to tap into, and as a result – despite strong 2021 numbers – was the worst performer. As per Reuters: “The difference in growth to Richemont during the same period is significant, although due to specific reasons (different geographical mix, less exposure to the strong performing high end, less exposure to own retail and online). LVMH has tapped into this appetite for high-end goods and gained ground on rivals with active marketing campaigns targeting local consumers rather than relying on deep-pocketed tourists. Its fashion and leather goods increased market share to around 21% compared to 16% before the pandemic, according to UBS forecasts”.
Apparently, locking people down for two years makes them want to splurge on luxury goods. Who would have guessed? As the world starts leaving the lockdown strategy behind, it will be interesting to see if these sales levels can be maintained. Luxury groups had a strong 2021, and the question is now if they can maintain or increase this in 2022. With inflation threatening the markets, and the pandemic not quite behind us, time will tell where we land 12 months from now.
Diversified Groups Take The Crown