The luxury brands industry benefits from exposure to several geographic regions. Consumers from Asia, eastern Europe, the Middle East and Latin America account for half of global luxury spending, with those from western Europe, North America and Japan representing the other half. Yes, growth is slowing in China, but the economy is still expected to increase by 6.5 to 7.5 per cent in 2013, which is impressive compared with the sluggish growth in the eurozone.
The impact of its slowdown on luxury brands has been offset by higher-than-expected growth in the US and Japan recently. In the US, luxury sales have surprised on the upside for several quarters. The fastest-growing segments are currently jewellery and high-end leather bags.
The variety of regions and countries from which we are seeing growth in luxury consumption is positive for the sector; not only does it boost sales but it also offers stability to the industry through the diversification of demand.
Asia is a good example: China is the major player in the region, but we are also seeing an increasing number of consumers from Thailand, Indonesia, the Philippines and Malaysia all contributing to growth in the luxury sector.
To capture future growth across all markets, luxury brands are recognising that it is not only about having the right brand and product, but also a strong company infrastructure, distribution and supporting technology.
Social media is important to reach younger consumers and e-stores are especially helpful in regions and markets such as China where store networks are not yet fully developed.
A strong online platform is essential and internet retailing partner Yoox has capitalised on this by providing the online sales infrastructure to firms that do not have the capacity to build it themselves.
However, physical stores remain key in presenting the brand and companies continue to invest in both new and existing boutiques. Ferragamo, for example, has invested heavily in refurbishment to ensure shoppers’ experience is consistent between stores, whether shopping in Asia or Europe, and that a fresh brand image is maintained.
Luxury brands have also been investing in production to meet future demand, which is expected to increase with rising wealth creation. Richemont has built up its production capacity for watches, while Hermes has ramped up production facilities in France.
This investment demonstrates that strong luxury companies are not just thinking about maximising profits for the quarter, but looking at the long-term horizon. Luxury is set for 6 to 8 per cent growth in 2013, and the sector’s longer term outlook remains very promising.
The majority of growth is expected to come from emerging markets consumers. Wealth creation is set to provide solid demand across a number of regions and luxury brands are investing to capitalise on these trends.
Scilla Huang Sun (pictured top) and Andrea Gerst have headed up the €373m JB Luxury Brands fund since its launch back in January 2008.
Since then the fund has returned 131.14 per cent.
Performance of fund vs index since launch
Source: FE Analytics
As the graph above shows, the recent lull in the performance of the Chinese equity market has had little impact on the fund.
JB Luxury Brands has ongoing charges of 2.22 per cent and is available on certain platforms.
