The luxury sector has started 2023 giving its shareholders reasons to toast with champagne. Its fame as a refuge against inflation and economic weakness did not finish translating into a good general performance in 2022. Now, economic prospects that remain pessimistic and, above all, the reopening of China after the lifting of its harsh measures of Covid zero, they push their price. In the short time so far this year, several of the giants in the sector have slipped into the best shares of the Euro Stoxx 50. Thus, LVMH, Kering and Hermès, are aiming for increases of between 12% and 14% in 2023.
In a world in which, according to Credit Suisse, 1.2% of the population accumulated 47.8% of wealth by the end of 2021, the outlook for 2023 is positive. Good proof of this is in LVMH, the largest company in this sector by market value. Its titles are at all-time highs and, even so, 86.5% of the analysts that cover the firm recommend buying its shares. The rest advise keeping them and none chooses to suggest the sale. “This year we do not have geographic preferences, but sectoral ones: luxury consumption, infrastructure, banks and insurance, selective technology and premium cars. It is about reassuming risks without being pressured because 2023 will offer opportunities ”, Bankinter analysts comment on their investment strategies for this year.
UBS analysts estimate an average growth of 9% in revenue for luxury companies in 2023, with the possibility of even higher. “These revenues will be driven by an increase in prices that will be in line with inflation, as well as by higher sales in China. However, we point out that a stronger than expected recovery in China and a faster return of tourism from the Asian giant are upward factors for our forecasts.
To give an idea of the recovery potential of this market, before Covid, in 2019, 33% of buyers of personal luxury products were Chinese. In 2021, the percentage was 22%. “Our star choices are Richemont, Hermès and Moncler, since we see them as the most balanced values in the sector, in addition to being very well positioned before the reopening of China,” they add from UBS.
The savings of Chinese citizens have increased significantly during the three years of restrictions due to the pandemic and strict limitations on mobility. Bank of America has made an estimate: the Chinese have six trillion extra yuan (820,000 million euros) more to spend. “This unprecedented amount of savings has sparked the debate about how far it will spur consumption as the country reopens. Some doubt that the savings will be used in the short term, considering the weak labor market and the negative effect that the fall in the real estate sector is having on wealth. We disagree,” they say.
“2023 is the Chinese year of the rabbit. We believe that investors should be chasing only one rabbit when it comes to China’s economic reopening: the luxury sector. We anticipate 9% global revenue growth for companies in the sector throughout this year, and China will be behind more than half of this increase. Despite a darker macro environment in developed markets, the latest available data continues to point to luxury resistance,” they conclude from Bank of America.
generational trend
All the growth in the luxury market came last year from generation Y (born between 1981 and 1993) and generation Z (between 1994 and 2010), according to Bain & Company in its report on the global luxury market. .
“The spending of the zeta and alpha generations (born after 2011) is expected to grow three times faster than that of other generations until 2030, the year in which they will represent a third of the market. This has to do in part with an earlier fixation on luxury products. Millennials noticed them between the ages of 18 and 20, while the zeta generation does it at 15 years old. The alpha generation is expected to behave in a similar way.”
Federica Levato, co-author of the report, argues that to satisfy this new consumer, brands will have to have other priorities.
For their part, Citi experts note a key consequence of this generational shift: Young luxury consumers are not as immune to bad economic environments as are senior consumers. Even so, they point out that “in contrast to the three previous months, in the last quarter of 2022 there were improvements in the total value of transactions, encouraged by a somewhat more favorable price outlook and by the immunity of the great luxury consumer. to recessionary environments”.
