Savigny Luxury Index

Market Pulse / Global Market Sell-Off Clips Luxury’s Wings

Global markets took a plunge at the beginning of February, wiping out any gains the SLI made on the back of a stronger than expected 2017

LONDON, United Kingdom — More good news regarding the luxury sector’s performance in 2017 did little to offset a long-anticipated sell off in global markets. This was prompted by fears of inflation and interest rate rises, notably in the US. The Savigny Luxury Index (“SLI”) also suffered from the prospect of currency headwinds over the near horizon. Our SLI fell 2.2 percent this month, in line with the fall in the MSCI.

Big news

More confirmation of strong overall performance in 2017 came from Moncler, Luxottica, Kering and Hermès. Kering posted stellar results, with sales growing by 27 percent in the year and the group recording its highest operating margin ever. Hermès’ sales growth tapered towards the end of 2017 as inventory levels were low, but the group promised yet another record operating margin for the year. All companies were upbeat about 2018, although Kering did point to the threat of a strong euro impacting sales growth.

The US affordable luxury sector seems to have weaned itself off discounting. Tapestry and Kors both felt a positive impact in their holiday quarter results from the measures to reduce discounting, introduced over the last 12 months. Ralph Lauren, slightly behind the curve on this front, saw its sales decline in the holiday quarter.

Italian brands saw some key management changes this month. Ferragamo’s chief executive Eraldo Poletto resigned after barely two years in the role. Safilo replaced chief executive Luisa Delgado with Angelo Trocchia, recruited from Unilever. LVMH plunged into its vast management pool to fish out Serge Brunschwig as chief executive of Fendi; he has been with the group since 1995.

Several deals involving some of luxury’s long-standing icons were announced this month. Lanvin received a welcome capital injection from Chinese conglomerate Fosun and its existing shareholders; Chanel took a minority stake in Farfetch as part of a tie-up to provide digital services to the grande dame of luxury, the aim being to enhance customer service rather than develop an ecommerce business; La Perla was acquired by Sapina Holding, a Dutch investment company; and Bally was acquired by Shandong Ruyi Woolen Garment Group, a Chinese textiles group, in a management buyout. Finally, Sotheby’s acquired a US-based vintage furniture and design marketplace platform called Viyet.

More talk about a conscious uncoupling between Stella McCartney and Kering dominated the news this month. The original transaction was a 50/50 deal, which is never stable in the long term. Lastly, Italian contemporary brand MGSM received investment from Style Capital, an Italian fashion and luxury investment fund.


Going up

  • Tapestry gained 8 percent this month driven by the strong results of Coach and the prospect of a Kate Spade recovery.
  • Moncler’s share price was boosted by its sales performance in 2017 and continued good tidings for 2018. The brand, a favourite with millennials, saw its share price increase by 8 percent in February.

Going down

  • Mulberry’s share price fell almost 17 percent this month. The jury is out as to whether the company’s recent adoption of the see-now, buy-now business model is viable.
  • Ralph Lauren was the only company this month to report a contraction in sales in the holiday quarter. Additionally, the group suffered a loss as a result of a hefty tax charge in the quarter. Ralph Lauren’s share price fell over 7 percent this month.
  • Richemont and Swatch Group’s share prices suffered from the continued strengthening of the Swiss franc against the dollar. Richemont had been recently considering a price hike in order to counter the impact of the strong Swiss franc on its input prices. The stocks lost both lost between 6 and 7 percent of their value this month.

What to watch

The fashion industry continues to struggle with trying to give what consumers want — lots of newness and instant gratification — whilst having to deal with the reality of its supply chain. Mulberry announced the introduction of see-now buy-now elements into its latest fashion show, whilst Burberry backtracked somewhat, saying that some of its collection would be see-now buy-now but other pieces would be see-now, buy a bit later. Moncler stirred things up by replacing its two catwalk shows per year with a presentation of eight capsule collections, designed by eight different creative directors, in Milan this past fashion week. The idea is to launch one new collection per month in its stores. Can fashion truly afford to take creative risks when everything has to be put on the line by creating and producing entire collections without any indication that consumers will like them? The traditional model of showing a collection and then having a process of selection by wholesale buyers and press to determine what gets manufactured did have some safeguards and thus allowed for some spectacular creativity. We don’t want to lose that.

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