How to play the global market for luxury goods

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Bernard Arnault, founder and chair of French luxury goods super-conglomerate LVMH (the letters stand for Louis Vuitton Moët Hennessy), recently widened his lead as the world’s richest person. Yet many North American investors are still mystified by the sector. London-based luxury goods analyst Rogerio Fujimori has spent two decades covering it, and he offers some perspective.

1. After working at Morgan Stanley, Credit Suisse and RBC Capital Markets, Fujimori joined U.S.-based Stifel Financial in 2020. Yes, European companies are still the luxury goods leaders: LVMH with a market cap of US$488 billion, Hermès at US$232 billion, Richemont (owner of Cartier) at US$98 billion and Kering (owner of Gucci) at US$78 billion are the top four.

2. Since 2012, the MSCI Luxury Goods index has clobbered the MSCI Europe index, rising 342% versus 75%. The sector rebounded strongly after the pandemic. Domestic consumption in North America, Europe and China grew strongly “despite all the disruption,” says Fujimori. “The part that is missing is Chinese tourist purchases in key travel destinations.”

3. Is the sector getting too frothy? “This is one of the key debates,” says Fujimori. Looking at price-to-earnings ratios, the sector now trades more than one standard deviation above its historical premium to the broader stock market. That “suggests that a lot of positives are already priced in by the market,” he says.

4. U.S. consumers were the leading buyers in 2022, at around 33% of the luxury market. The country has some large publicly traded domestic players, including Tapestry (Coach and Kate Spade) and Capri Holdings (Michael Kors and Jimmy Choo). But Fujimori says many cater to the “aspirational” segment (think handbags under US$1,000), versus “ultra-luxury” European brands (US$5,000 and up).

5. Stifel sells Fujimori’s advice to institutional clients, so he doesn’t give me specific stock or fund picks. But he says in recent years there has been a significant “bifurcation of performance” among sector brands. Compare Canada Goose and Milan’s Moncler in the outerwear category—Goose shares down 48% over the past five years versus Moncler up 92%. He expects some bifurcation to continue.