奢侈品市场的投资机会

对于像我这样的普通人，奢侈品真的是太奢侈。当我帮助一位朋友完成了几笔近四万美元一个“哈马斯”小包的交易之后，我还是不明白：中国人真的是有钱啊？！

人家有钱，我们羡慕得流口水也没有用。那么，如果我们更多的了解一下奢侈品市场的行情，或许，在人家花钱享受的时候，我们也能自得其乐的从中赚一笔。

下面的文章，读起来有点趣味：让我们对于奢侈品市场的商业运行状况和应该有与不应该有的运行逻辑，有个了解一点点的机会。

Coach公司的命运，在最近几年有点尴尬。股价也在股市大行情蒸蒸日上的时候，嫣嫣耷耷。市盈率不高，盈利成长在美国这个主市场停滞。虽然在中国这样的新兴市场还在高歌猛进。但是，是不是该像很多其他公司一样，在中国市场放手一搏？还是继续以保守的姿态，稳扎稳打？最近也让公司之外的分析师们烦恼和不安。水中的人不急，岸上的人却急得也想跳到水里去。

这两者之一的选择，在一定程度上也是一场博弈：中国市场对于奢侈品的需求，是不是已经冷却？和就此之后的一蹶不振？特别是在反腐斗争正如火如荼的时候？

个人看来，中国的反腐败运动，也只可能是短期的坚决。中国的集权专制体制，从根本上决定了，它不可能最终将国家治理得像美国这样廉洁。中国人已经实验了几千年了，到头来还依然只是短期效果显著，长期依然我行我素。

在世界上的任何地方，只要有人就有私心和私利。只要有权力的独裁和独断，就有使用权力的徇私舞弊。历史如此，未来也会依然如此。在只需要对上负责的中国体制下，在成为公务员就是最好的职业选择的客观存在下，你不腐败都无法生存，又谈何彻底根除腐败呢？

所以，对于奢侈品的需求，在中国市场，在短期“萧条”之后，还会再次繁荣昌盛起来。于是乎，Coach也自然会有继续在中国市场大赚特赚的时候了。

只是，该公司在美国到处开“Outlet”的做法，虽然短期销售上去了，但却让自己慢慢中成为不伦不类的品牌：奢侈品吧，又太大众化？！大众化吧，又价格过高点，太奢侈了点？！这种中间路线是不是能够独树一帜的做出一番长久的大业绩来？就是目前让人糊涂的一点。

无论如何，如果你对于商业有兴趣，读读下面的文章，会对你有益。

Coach: Ripe For Takeover?

Oct 24 2013, 13:49 

"International sales decreased slightly…"

That's a sentence you do not want to see when you are looking at a company which is viewed by many as a significant player in the booming global luxury goods sector. And yet, there it is, in Coach's (COH) first quarter report released a few days ago. To be fair, the slight decrease in sales was due to rare and large currency fluctuations. The dollar rose by 27% against the yen in the last year, an extreme move not often seen with major currencies. On a constant currency basis, international sales rose 9% in the quarter, which is reasonable but not a barn burner. A bright spot wasChinawhere sales boomed 35%. So there was some good news behind the headline.

Despite the recent Q1 disappointment, Coach's net income and free cash flow margins remain strong. Its main problem is not profitability but the fact thatNorth Americacontributes 67% of total revenues and has essentially gone ex-growth.

If you put Coach in the bucket of luxury goods companies (which are mostly European), it is clear that Coach is badly underperforming. Sector peers LVMH (LVMHF), Burberry (BBRYF), Richemont (CFR.VX) and others have zoomed ahead with sales, profits and stock prices not far from their all time highs. The main reasons for their greater success have been their more aggressive expansion intoAsiaand stronger brand management.

But if you put Coach in a more general bucket of consumer and apparel companies, then it is doing better than some and worse than others. The issue, however, is that the company's future will be largely determined by which bucket it puts itself in. As a luxury goods company, it can maintain some pricing power and it will preserve or raise its margins and market value. It could also merge with or be acquired by one of the Europeans. But as a general consumer company, its brand will get tarnished. Its margins will continue to erode and so will its valuation.

Coach's problems can therefore be summed as follows:

- An insufficient geographic footprint outside theU.S.

- A large North American presence which has stalled.

- A brand that is in danger of falling out of the "luxury" sector.

The store opening program can be accelerated overseas if there is sufficient confidence that the luxury boom will continue. Coach has a strong balance sheet and is generating positive free cash flow. In theory, therefore, it has important untapped reserves which it can deploy to open stores at an accelerated rate.

North Americawill be more difficult to fix, given intense competition from the likes of Michael Kors (KORS) and Kate Spade (FNP). Here, design appeal and brand management are key to an eventual recovery. Coach faces the risk of what the French call "Cardinisation", the fate met by the Pierre Cardin brand when it became so ubiquitous that it lost its luxury stamp.

In this sense, the fact that 60% of Coach's North American sales occurin factory outlets is positively troubling. Sales at these outlets come at better margins because of lower costs and higher volumes but they damage the brand and could reclassify it outside of the luxury sector. And that could be the beginning of a death spiral for pricing.

A quicker fix would be to sell the company to another luxury goods firm. An acquirer who already has a large presence in Asia andEuropecould quickly boost Coach's overseas revenues and lower its costs. Conversely, Coach's largeUSpresence could be of benefit to an acquirer looking to grow its own American sales. One problem is that a buyer may initially look to strengthen the brand by closing some factory outlets. This couldreduce North American volumes in the near term, a consideration which may depress any proposed takeover premium.

So is this a good price to buy the stock?

Yes, because international sales growth will soon return and for the possibility of a takeover.

No, because branding issues andNorth Americaare unlikely to be resolved in the next quarter.

All in, it is a buy for speculative portfolios. More conservative investors should look to buy at a lower price if the company takes steps to avoid further erosion of its margins and to move its brand upscale.

by SAMI KARAM

Diamonds are forever. What about growth in the luxury sector?

A few months after Porsche teamed up with RIM to offer the Porsche Blackberry, Tonino Lamborghini recently announced the introduction of three gold plated cell phones (priced $1,850 to $2,750) and of an Android tablet ($2,300) aimed at the Russian market. This story neatly captures the current state of play in the global luxury industry: a prestigious European brand flashing a status product at a BRIC consumer. Notwithstanding the gloom emanating from daily European headlines, the continent’s luxury sector has been riding an unprecedented expansion. With their aggregate 70% market share in global luxury goods, a slew of European companies have been living their best years ever.

The Best of Times

Sales have risen strongly at BMW. And at LVMH, the French parent of Louis Vuitton, Dom Perignon, Bulgari and Tag Heuer. And at Hermes and Burberry. And at Swatch Group, the Swiss parent of Breguet, Glashütte, Blancpain and Omega. In the two years 2010-11, BMW increased its sales by over 17% annually. LVMH increased theirs by an average 14%, Hermes by 18%, and Swatch by 22%. With record margins and cash flows, these results are oddly incongruous with a global economy limping and stumbling out of (or through, or back into) the 2008 financial crisis.

The boom has been fuelled by rising demand in the BRIC countries and, to a lesser extent, in theUnited States. In 2011, sales in Asia (includingJapan) were 28% of total revenues at BMW, 35% at LVMH, and as much as 54% at Swatch. At LVMH in 2011, sales in Asia ex-Japan and in theUSgrew by 27% and 18% year-on-year, respectively. For BMW,Asiarepresented 22.5% of unit sales in 2011, up from 10.6% in 2007.

If the rich, per F. Scott Fitzgerald, are different from you and me, then the suppliers and courtiers who pander assiduously to their vanity or sense of perfectionism, the purveyors of the finest consumer products on earth, are certainly different from the average consumer company. Whether by sheer luck or brilliant foresight, luxury goods companies now find themselves at the nexus of two main drivers of demand. First, the global rich, whose numbers have been increasing, are less sensitive to the economic cycle. They have big reserves of savings and can spend on luxury items even if their incomes falter for a year or two. Most will continue to consume luxury unless the economy is hit by a severe downturn. One of the reasons that BMW is bullish on the future is its expectation that the number of millionaires will continue to rise in developed markets as well as in the BRIC countries andTurkeyandSouth Korea(identified as the BRIKT +Chinain a BMW presentation).

Second, the newly rich and middle class in emerging markets have embraced luxury products with a vengeance. Like the Japanese in the 1990s, shoppers in the BRIC countries are today’s most profligate luxury customers. Chinese buyers discovered luxury brands years ago and they have been buying with gusto. Significantly, their buying power and obsession with luxury is felt far beyond their borders. According to the Boston Consulting Group, travelers from emerging markets (tourists and business people) account for a large share of global luxury sales, even if some of these sales are recorded inParis,New YorkorTokyo. BCG says that the Chinese spend as much on luxury while away as they do at home.

Barring a global recession, these two groups, the rich everywhere and the middle class in emerging markets, will continue to spend on luxury products and, increasingly, on luxury services. These are undoubtedly the best of times for the luxury sector. The question then becomes: what will derail the boom? A shift in demographics could do it.

A Brief Digression on Demographics and Markets

In general, the world is full of coincidences but it would be foolish to accept all of them at face value. Sometimes it makes sense to ask questions to find out whether two concurrent events are really a coincidence or whether they are related. Among coincidences that we should not take at face value are important reversals in markets which occur at the same time as demographic inflection points. For example, the Japanese stock market peaked in 1990, the same year that the number of Japanese turning 40 also peaked. It could be a coincidence but then theUSstock market peaked in 2000, the same year that the number of Americans turning 40 also peaked. It could be another coincidence or alternatively, there could be a poorly understood dynamic underlying the stock market, a dynamic directly linked to demographics, aging and investing etc. (The Chinese stock market peaked in 2007, one to five years after the number of Chinese turning 40 hit its own peak).

Demographics are generally ignored or underestimated by market participants. They are often seen as far-removed inputs in the economy which eventually manifest themselves through other measures. For example, an investor may ignore the change in demographics in a given area or region or country, confident in the knowledge that any significant shift will eventually appear in monthly retail or housing data or other economic indicators. The only problem with this thinking is a large gap in timing. Monthly status updates from the economy are mostly embedded in market prices by the time they are released. By contrast, an analysis of demographic trends can help make a forecast several months or even years before significant changes filter through the monthly economic data.

Dependency Ratios

One demographic measure which should certainly be examined in its relation to markets is the dependency ratio which measures the number of dependents per working adult (it is the sum of people under 14 and over 65, divided by the number of people aged 15-64). The table (compiled from a UN 2010 report) shows the ratio (per 100 people) for various countries and regions. A declining ratio is generally positive for the economy because income earners have fewer dependents and can divert dollars to investing and spending.

The world’s dependency ratio which fell steadily from 1970 to 2010 will be essentially flat until 2020-30 and will start to rise beyond 2030. In theUSandEurope, the ratio hit bottom around 2010 and will rise in future decades. But inJapan, it hit bottom in 1990 and has been rising ever since. Perhaps this explains in partJapan’s lost decade which turned into two lost decades.

In the BRIC countries, the dependency ratio is still falling inBrazilandIndia, but it is near bottom and is set to rise inRussiaandChina. And inAfrica, the ratio will continue to fall for a long time.

As the ratio rises, there will be fewer dollars to spend on discretionary items because more of these dollars will have to be redirected to taking care of dependents, whether this is done directly through assisting family members or indirectly through charities or government social programs.

Which brings us back to luxury goods, in some ways the quintessential discretionary items. Will a rise in the dependency ratio in developed countries, inRussiaand inChinalead to a slowdown for the sector?

Japan

Looking into the future, the case ofJapancan be informative. It was not long ago that the Japanese were avid buyers of luxury goods, both at home and while traveling. But a 2009 study by McKinsey found that the Japanese appetite for luxury goods has been on the wane since 2001 (in volume terms) and it noted that their purchases started to decline (in currency terms) in mid-2006, two full years before the onset of the financial crisis.

Whether by coincidence or causality (the latter in my opinion), the demographic data fits well with this turn of events. Because of a low birth rate and an ageing population,Japan’s dependency ratio, 0.43 in 1990, rose modestly to 0.47 by 2000 and more briskly to 0.56 by 2010. It is on its way to 0.7 in 2020.

Nonetheless, heavy investing by luxury companies over several decades means that the Japanese luxury market remains the second largest in the world, after that of theUnited States. LVMH has 360 stores inJapan, a country 10% smaller thanCalifornia, vs. 621 for all of theUS.

BRICs

The dependency ratio is bottoming inRussiaandChinabut it will only rise slowly for the next 10 to 15 years. This suggests that, barring other developments, the luxury sector could continue to do well, but its growth rate may taper off. Of all the BRIC countries, India’s ratio looks the most promising and it offers the best longer term profile if its policymakers can set the country on a path to reap the demographic dividend resulting from a decline in its fertility rate. Although luxury companies have a presence inIndia, their footprint is much smaller than inChinaandJapan. For example, Louis Vuitton has over 50 stores inJapan, 39 stores inChinaand 4 inIndia.

IntoAfrica

Africawill see a steady decline of its dependency ratio in the 21st century. Luxury companies have a small to nonexistent presence on the continent. Swatch Group records a minuscule 0.6% of its sales there. Louis Vuitton has three stores, of which two inSouth Africaand one inMorocco, but none in oil-richAngolaorNigeria. Porsche has seven ‘Porsche Centres’ in Africa, of which three in South Africa and one each in Angola, Nigeria, Egypt and Ghana. But it has 42 ‘Centres’ inChina, 23 inRussiaand 8 inBrazil. Although store count is an incomplete measure (because of sales through third party outlets), a larger number of own-brand stores denotes a greater confidence in the stability and growth of a given market. IfAfricais the next economic frontier, these are indeed very early days for luxury goods companies on the continent.

They should sit up and take note. A team led by Hinh T. Dinh, Chief Economist at the World Bank, recently examinedAfrica’s prospects as a new manufacturing hub.Dinh writes:

“The ongoing redistribution of cost advantages in labor-intensive manufacturing presents an opportunity for Sub-SaharanAfricato start producing many light manufactures, enhance private investment and create millions of jobs.

According to new evidence, feasible, low-cost, sharply focused policy initiatives aimed at enhancing private investment could launch the region on a path to becoming competitive in light manufacturing.

These initiatives would complement progress on broader investment reforms and could foster industrialization and raise the market share of domestically produced goods in rapidly growing local markets for light manufacturers.”

Rise of Experiential Luxury

In its report, BCG estimated that sales of the global luxury sector amounted to $660 billion in goods (including luxury cars) and another $770 billion in services. BCG also highlighted a gradual shift in customer preference from owning luxury (goods) to experiencing luxury (services). Experiential luxury includes spa services, safaris, luxury travel, fine dining, special art auctions and other services. BCG deems this subsector to be growing by 12% per year while the market for luxury goods grows by 3 to 7%.

A key driver of experiential luxury is the aging of the population in North America, Europe,JapanandChina. As people get older, they are less interested in owning expensive watches and handbags and more interested in valuable experiences. Some luxury product companies are trying to position accordingly. In its considerable portfolio, LVMH now also counts Cheval Blanc, a high-end hotel in Courchevel. But these efforts are so far embryonic.

So can the boom last? Yes, but projecting into the future the strategy of the past ten years will not be enough. The reversal of the dependency ratio in several BRIC countries and the rise of experiential luxury in developed markets pose the biggest challenges. Luxury goods companies will have to adapt their geographic and product footprint accordingly. In the near-term, wider concerns about the global economy override demographic developments. But in the longer term,Indiaand Africa look like promising frontiers while the rest of the world (includingChina) grapples with an older population and a rising number of dependents.