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Why LVMH, Kering Are Well-Positioned For Recovery, 'Revenge Buying' At Hermes

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Why LVMH, Kering Are Well-Positioned For Recovery, 'Revenge Buying' At Hermes

Global sales of personal luxury goods are expected to fall 60% in the second-quarter of 2020 due to the coronavirus pandemic, according to a Bain & Co. report.

Last week, the Ares Management Corp (NYSE: ARES) co-owned, high-end retailer Neiman Marcus became the first large department store chain to file for bankruptcy.

Historically, the luxury consumer is the most resilient and first to come back after an economic downturn, KB Advisory Group president and retail analyst Kristin Bentz tells Benzinga.

“She [the luxury shopper] never really goes away — instead of buying five pairs of Louboutins, she’s buying two,” says Bentz.

Coronavirus Crisis Takes Toll On Luxury Sector

The coronavirus pandemic has played a huge role in the luxury retail slowdown, with the crisis taking a toll on luxury.

Bain & Company estimates the market for personal luxury goods declined by 25% in the first quarter of the year as COVID-19 spread in Asia.

“Obviously no one retailer is immune to the effects of a Black Swan event like this crisis, but there are some luxury goods retailers who are best in breed and better positioned for a recovery when that happens — and it will,” Bentz says. 

China has started to lead the way toward a recovery, and Chinese consumers are set to cement their status as crucial drivers of the industry, accounting for nearly 50% of the market by 2025, according to Bain & Co.

Luxury purchases made online have increased throughout the crisis, and the online channel could represent up to 30% of the market by 2025, the report said.

Bentz says her thesis is that large, multinational luxury goods players with diverse products and significant exposure to Chinese consumers will be positioned best after the pandemic, giving KERING S A/ADR (OTC: PPRUY) and LVMH Moet Hennessy Louis Vuitton (OTC: LVMUY) as examples.

These retailers can apply those recovery methods to the European and U.S. markets, she says.

Significant "revenge buying" by Chinese consumers is likely, Bentz says, pointing to a $2.7-million daily sales haul at the Hermes store in Guangzhou.

“And of course one hopes that type of pent up demand manifests itself in U.S. markets in the future as we reopen the economy.”

Related Links:

Analyst: US Tariffs On European Goods Will Impact Luxury Market

Is The Coronavirus An 'Existential Threat' For Retailers?

Photo credit: Eigenes Werk, Arroser / Wikimedia

Latest Ratings for LVMUY

DateFirmActionFromTo
Apr 2019CitiReinstatesBuy
May 2016Exane BNP ParibasUpgradesNeutralOutperform

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