International bank HSBC forecasts growth in the luxury sector to slow down from 9 percent in 2018 to 6 percent in 2019. But that isn't necessarily bad news. In a report titled Expecting the Unexpected, shared by email with FashionUnited, the bank said the main reason why it believes the sector is likely to slow down is because it has been operating in a spectacular scenario in recent times. “All consumer nationalities have been contributing positively to growth, which is not sustainable”.
“We forecast organic sector growth to normalize to 6 percent, which corresponds to what we always estimated is the long-term sustainable average growth rate for the sector”, stated the bank. The recent boost has been driven by Chinese consumers, whose levels of confidence in the economy hit a historical high in 2018. While they’re unlikely to remain so positive, HSBC believes macro concerns about China are “overblown”. Commenting on these fears, the bank argued: “there appears to be a disconnect between macro fears and solid luxury demands, and our central case for luxury remains one of a soft landing, rather than steep declines”.
LVMH and Kering were classified as "high-conviction buys" for investors, as brands Gucci and Louis Vuitton are currently so strong even consumers who are not frequent luxury shoppers are likely to turn to them when looking for high quality items. Additionally, brands belonging to luxury conglomerates benefit from the parent company’s greater ability to invest in stores and ecommerce, which will cause them to outperform standalone players.
But there are other promising names in the sector and investors are advised to look beyond the usual suspects. Capri Holdings Limited, the conglomerate resulting from the acquisition of Jimmy Choo and Versace by Michael Kors, is expected to gain market in 2019, as is Tapestry, which includes Stuart Weizman and Kate Spade. Hugo Boss, Richemont and Moncler are safe bets too.
Investors are advised to stay away from Salvatore Ferragamo and Tod's, who are losing ground to competitors.
HSBC’s advice for luxury companies in 2019
For HSBC, there is an important aspect in which luxury brands can do better: ecommerce. The sector lags behind others when it comes to online penetration, which is predicted to grow by 1 percent per year in the next few years. Therefore, HSBC's report includes a few tips for luxury companies looking to improve their performance in the digital landscape.
The first one is to be more selective when choosing third-party online players to work with, and whether to work under a retail or wholesale model. Secondly, companies are advised to truly build omnichannel capabilities, rather than just using omnichannel as a buzzword. HSBC also thinks they should “start thinking of the consequences” that expanding their online presence will have on brick and mortar stores, “something we believe very few have done and could result in store closures”. Last but not least, the bank recommends luxury companies to step up investments in advanced analytics.
Picture: Louis Vuitton Facebook