Luxury sector comes out of its ‘blue period’
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Luxury sector comes out of its ‘blue period’

It is not news to many luxury investors, but 2016 wasn’t the sector’s greatest year. A combination of slow global growth, geopolitical issues, austerity in the west and the east, and more, led to the luxury sectors first contraction for years. And although only two billion – less than a percent – of the luxury market disappeared, it was rough nonetheless. In 2017, though, this trend has reversed itself – luxury’s on the up, and it looks set to continue.

Luxury dropped in 2016…

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But big, traditional, luxury companies are outperforming this year

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SOURCE: Yahoo Finance

Companies like Kering, LVMH, Richemont, and Tiffany & Co. – that is, the big traditional luxury companies that, for many people, are synonymous with the sector – have already returned anywhere between 20% and 40% this year. According to Moody’s Investor Service, this is indicative of a wider recovery: earnings growth amongst luxury retailers is expected to rise from a sluggish 4% in 2016, to 7% this year.

With brightening signs in Macau, there is some suggestion that Chinese austerity is winding down. Taken together with improving global growth throughout the year and the apparently growing demand for premium goods, services, and experiences, and luxury looks like it’s on a roll.

Dominion’s Luxury Fund is having a great 2017 so far

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SOURCE: Dominion Fund Management Ltd.

According to Business Insider, this is just the beginning of another luxury gold rush that will begin properly around 2020. The driving force behind it will be the digitalization of the luxury world, as iconic brands and luxury powerhouses apply the lessons learnt from the Ecommerce explosion to their own platforms. There are signs already that this premium digital space is in the earliest stages of being carved out: despite a troubled 2016 for luxury overall, Bain & Company reports that online sales of personal luxury goods rose by 13% year-on-year.

Disclosure

Dominion holds the luxury companies mentioned in this article in its Global Trends Luxury Fund. Additionally, the Fund contains a number of other luxury companies, and considers a compelling digital strategy to be a condition of investment. 


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Disclaimer
The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.