At the start of the year, we wondered how the luxury industry would fare.
With a financial crisis that gripped most of the world, we suspected that luxury would suffer, as other industries.
But it would seem that the luxury industry came out on top. With positive results coming out of the majority of the fashion houses, one has to wonder, will the bubble burst?
It would seem yes…
Bloomberg reports that Prada is falling out of fashion six months into its Hong Kong trading debut as investors brace for Chinese shoppers to curb spending.
At present, Prada sales in Asia contribute more than 42 per cent to their revenues, but it seems that shares have dropped 32 per cent since they floated in July. This has wiped more than $US5 billion off its market value.
But it seems that Prada isn’t the only company that has seen a decline in their stocks, with luxury jeweller Luk Fook Holdings International Ltd also reporting a decline
This year, luxury houses have seen incredible growth in Asia, particularly in China where it’s become all about luxury for the consumer. But 2012 could paint a different picture as luxury sales are expected to slow down, Royal Bank of Scotland analyst Katherine Chan told Bloomberg.
“The golden time, or the high-growth period for luxurious good retailers is probably over.” said Chan.
Luxury good sales inChinawill reach a record 88.8 billion yuan ($US14 billion) in 2011, rising 12 per cent this year and growing 82 per cent since 2005, Euromonitor International estimates.
“Chinese shoppers could cut back spending on luxury items in the near term, as the stock markets and the property markets have corrected steeply this year,” said Eddie Lau, head of regional consumer research at Citigroup. “The wealth effect is fading.”
These would be hard words for the luxury houses to swallow, as they have become more and more reliant on China.
We reported about Chow Tai Fook Enterprises looking to float on the HK Stock Exchange, but it may have been the wrong time for them floating, with the world’s largest jewellery chain falling 8 per cent on its HK Stock Exchange debut yesterday.
“The macro-economic situation may weaken the buying power of the customers.” said Henry Cheng, executive chairman.
We should look at the positive angle though… with other global luxury companies faring quite well.
Forbes reports that Hermes are selling at a price-earnings ratio of 44 times, whilst cosmetic house Estee Lauder shares are trading at a multiple 27.53 times earnings.
When Coach made its debut on the stock market in 2009, shares were $US12, but they are now $US60.
The near term future of these luxury good stocks will reflect the purview of the 1 per cent of Ameria and the huge new creation of super-wealthy in Russia, China, India and Latin America.
Image credit: thebestfashionblog.com
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Hi there – as someone who works in markets you haven’t been very accurate with this article. Yes Prada is down but they are still a good proposition. And according to the same article you’ve take the information from, ‘still trades at 20.52 times expected earnings, more than double that of the benchmark.’