Savigny Luxury Index

January 2015

 

The Swiss Tsunami

The Savigny Luxury Index (“SLI”) started the year on a high as it gained almost five percent over the month.  It outperformed the MSCI World Index (“MSCI”) by four percentage points boosted by positive foreign currency movements, low oil prices and strong growth prospects in the US.

Big news

  • Protests in Hong Kong are over for now and the main impact of Beijing’s anti-graft drive has faded.  But Swiss watchmakers have had to deal with yet another challenge.  Swatch’s CEO talked of a “tsunami” for the whole of Switzerland.  The Swiss National Bank stunned markets by scrapping its policy of preventing the Swiss franc appreciating beyond CHF1.20 to the euro.   The Swiss franc soared by almost 30 percent in value against the euro.  At the Salon International de la Haute Horlogerie in Geneva, the first big watch fair of the year, the mood was cautious.
  • As a result of the surge in the Swiss franc, Richemont’s flagship brand Cartier will increase prices for watches and jewellery by five percent to limit damage to its margins.  Swatch will follow suit and increase prices by five to ten percent in Europe for its brands Blancpain, Breguet, Omega and Longines.
  • Kering appointed a new Creative Director for its flagship brand Gucci.  Alessandro Michele’s first collection will be the women’s autumn/winter ready-to-wear collection to be presented on 26 February.
  • Two deals worthy of note: Coach acquired US footwear brand Stuart Weitzman and Blue Alliance, a private equity firm, acquired American contemporary fashion company Nanette Lepore.

Going up

  • Tod’s, Ferragamo, Moncler, Luxottica and Safilo are all up by double-digits, Tod’s and Ferragamo having recorded the biggest jumps (almost 26 percent over the month).  The Italian stocks have been fuelled by the euro sliding to an 11-year low against the dollar and strong sales growth in the US.

Going down

  • The surge in the Swiss franc has hit Swatch and Richemont hard (their shares were down over 17 percent and 13 percent respectively) as they have high costs in Swiss Francs and substantial revenues in euros.
  • Tiffany’s shares slumped by almost 19 percent after it cut its profits forecast for the full year due to a disappointing holiday shopping season and further weakness in Japan.  Nearly half of Tiffany’s sales come from abroad – primarily Asia, Japan and Europe.  Currency translation lowered sales growth in Japan and Europe by 13 percent and 8 percent, respectively.  The recent rally in the dollar not only affected the translation of results, it also had an impact on sales from tourists in the US.

What to watch

The strong dollar could scare tourists away from the US as the dollar is bound to get yet stronger in 2015.  But travel experts hope that some of the drop in spending will be made up by increased tourism from China, thanks to a new 10-year reciprocal visa arrangement with the US.  Lower oil prices and a stronger US economy may also encourage more domestic travel.

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