Firstly, regarding its recent history, the industry showed high growth till 2012 and it has decelerated a lot since that year. However, at the moment the luxury sector forecasts improve by showing a much stronger expected growth in China (around 9 and 10%) and Europe (around 8%) than in the United States where the sector growth rate is about 2-3%. This high growth is positively correlated with GDP growth and welfare, which are also a consequence of the fact that the middle-class is growing all around the world and more especially in China.
Furthermore, investors who are thinking about investing in this sector during the current Covid-19 Pandemic, they may find very good opportunities for capital gains. After Q3 2020, the number of sales increased due to lots of rich investors have improved their financial situation with lots of capital gains acquired during the first months of the recovery of the financial markets. However, they did not spend a lot of money on luxury goods such as luxury apparel, hotels, and restaurants because they had to stay safe at home. Consequently, many luxury consumers, especially Chinese due to their strict country regulations, may spend a lot on luxury goods when they travel during 2021 and 2022 once people start to travel again after lockdowns come to their end. Besides, this will also be an even better opportunity for luxury multibrand firms such as LMVH to increase their product prices across brands and get higher margins.
Moreover, it is worth mentioning the e-commerce growth will continue in 2021 due to more consumers are willing to buy luxury goods from home. Industry prospects may have underestimated e-commerce luxury sales by stating they will grow from 8 to 15% in 2023, which is quite a conservative growth rate. Physical stores involve a pretty high amount of fixed costs which consolidated luxury firms may be able to avoid so that they save a lot of money by developing their own luxury websites.
In contrast, these firms are supposed to develop “high-quality websites” that substitute the extraordinary marketing and customer service and experience offered by physical stores appropriately. Besides, this customer experience provides further knowledge about the end consumer and allows the brand to capture the third-party retailer markup. As a result, this goal is not so easy to accomplish. Furthermore, some luxury firms still need to get such a remarkable reputation so that this transition may last a bit more.
All in all, it is rather likely lots of publicly-traded luxury firms are still undervalued at this moment and they will increase their revenues considerably during 2021.
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