The year 2021 was something of a transition year for the luxu- ry market after the reset brought on by the Covid-19 pandemic. The State of Luxury 2021: The Industry Insider’s Report notes that most of the 500-plus companies surveyed experienced a down- turn during the pandemic when travel halted, restaurants and shops closed and brands retreated to e-commerce. But revenues dipped by less than 10 percent and not all brands were affected.
In fact, in August 2021, the luxe industry giants reported results that, as news agency AFP put it, ‘show the world’s well-heeled are splurging on luxury goods, as sales surpass even pre- pandemic levels’.
‘Covid-19 has added to the pressure with demand going to a very concentrated number of winning brands,’ Francesca di Pasquantonio, head of luxury goods equity at Deutsche Bank, told Vogue Business.
In South Africa, Louis Vuitton is by far the most lusted after luxury brand, according to Luxity, the dominant local luxury reseller. Its own State of the Luxury Market in Africa Report 2021 – covering 1 June 2020 to 30 July 2021 when the pandemic was at its peak – lists the country’s top five designer brands as Louis Vuitton, followed by Chanel, Gucci, Hermès and Burberry. Luxity notes that the pre-owned market has grown significantly over the last five years, as it allows for easier access (which is key during lockdowns), flexible payment terms and the ability to procure rare pieces not available first hand in South Africa.
But beyond that, it’s proven in many instances to be a smart invest- ment. Luxity cites the resale value of Chanel’s coveted Medium Classic Flap bag rising by 17.25% over the same period – and the reseller itself knotched up a 47% growth in 2020 and 117% during the first half of 2021.
UNPACKING THE POWER
Luxury goods are those for which demand goes up either as the price goes up, or as people have more money, says Protea Capital Management founder and chief executive Jean Pierre Verster. ‘Why it’s so attractive from an investment perspective is that your clientele are less price-sensitive,’ he says.
David Shapiro, Joburg- based chief global equity strategist at Sasfin Securities, observes that this makes the demand for luxury goods practically bulletproof. ‘For the people who buy Rolls- Royces, it doesn’t matter what’s happening in the world, nor do they ask about the price,’ he told Glamour in August 2021, a sentiment reiterated by Mia Kruger, director of research and fund management at Kruger International: ‘Affluent consumers will shop throughout.’
South African investors have been right on the money. In the same month, Business Live reported that shares in Richemont (previously Rembrandt, the JSE- listed Switzerland-based luxury goods holding company founded in 1988 by South African businessman Johan Rupert) have ‘exploded 76% in the past year’ – triple the 23% gain of the JSE’s All-Share Index. Richemont produces and sells top-end jewellery, watches, leather goods, pens, firearms, clothing and accessories, and its brands, which include Cartier, Piaget, Chloe, Alfred Dunhill and Montblanc, appear stronger than ever.
France-based LVMH, which as the name conveys includes Louis Vuitton, Moet & Chandon and Hennessy, has performed even better – up 86% in a year. And the power of luxe doesn’t end there. Business Live notes that ‘overall, the stock of the world’s best-performing luxury goods groups has proudly bested the returns from the general market over the past five years’.
Based on Sasfin Securities’ stats, if you’d invested $100 in Standard and Poor’s 500 five years ago, it would be worth some $199 today, a yearly return of 14.7%; if you’d put it in LVHM, it would be worth $486, an increase of 37% a year. And Kering, owner of Gucci and Balenciago, has outperformed even that, with a whopping 40% increase each year for five years.
FUELLING THE LUST
What gives luxe brands the clout that keeps us buying them even, or perhaps especially, in times of financial and emotional crisis? In an April 2021 review of the latest advances in the psychology of consumption, David Dubois, Associate Professor of Marketing at the Singapore campus of the international graduate business school INSEAD, concludes that the drivers of the desire for luxury often come from con- flicting motives. ‘At the heart of it is the need for status, a deeply ingrained and often unconscious force guiding thoughts, feelings and behaviour around luxury brands.’
Research also shows tensions around whether consumers use luxe to advance their status or to maintain it. It turns out that wealthy conservatives are particularly reliant on luxury prod- ucts and brands to affirm their social ranking, while liberals favour ‘unique, creative products or experiences’, as opposed to purely material luxury.
Basically, ‘conservatives want to be ‘better than’, while liberals want to be ‘different from’, Dubois elaborates. But perhaps the current drive to spend on luxury is not so complicated. Luxury sector analyst Erwan Rambourg, author of the recently published book Future Luxe: What’s Ahead for the Business of Luxury, writes: ‘A random threat like a pandemic is likely a reminder of how fragile life is and maybe also an incentive to make the most of it.
Luxury purchases are more rational than one would initially think and some contacts have been telling me about a “survival trade”, along the lines of “I have made it through this, it’s been tough and I deserve to treat myself”.
By Glynis Horning