Bags or baubles? How AI wealth divides luxury stocks
Richemont looks better placed than LVMH if the technology creates a K-shaped economy
AI is creating enormous wealth — but who gets more, and who gets less? It’s an important question not just for governments, but for luxury goods companies too, and investors trying to work out which sellers of high-priced trinkets will perform best. Some are geared to the super-wealthy while others — because of their size or the types of goods they sell — need a lot of affluent people to be buying their products.
Think, for instance, of LVMH. The French parent of Louis Vuitton and Christian Dior appears, based on the second-quarter results it reported on Monday, to be benefiting from the raft of newly enriched tech folk. Chief financial officer Cécile Cabanis called out the positive impact of wealth creation in the US and Korea in particular. That helped LVMH’s fashion and leather goods division, which accounted for three-quarters of operating profit last year, to finally return to revenue growth excluding currency impacts and any acquisitions or disposals.
Jewellery, though, is having more of a moment. While LVMH’s clothing and bags business grew by just 1 per cent year-on-year, the division that sells watches and other shiny baubles rose 11 per cent. Things are even better at Richemont, where US and Asian consumers helped drive an outlandishly strong performance in the three months to the end of June: the main jewellery business grew by almost a quarter, excluding currency impacts.
Consumer tastes and fashions play a part. But jewellery ought to do well in a world where the rich get much, much richer. After all, prices of gems can reach astronomical levels. The most expensive product at Richemont’s Van Cleef & Arpels brand costs not far off a million euros, or 1,200 times as much as its cheapest trinket, analysts at Bernstein note. Even the highest-end bags seem affordable in contrast: Louis Vuitton’s exquisite Capucines are a relative snip at €6,500.
Richemont, then, looks better placed than LVMH if AI ends up creating a K-shaped economy, that much-debated model that sees the wealthy account for an ever-greater proportion of spending.
But in the alternative scenario, where the wealth generated by new technologies swells the coffers of the middle classes too, the French luxury conglomerate could be the better investment. Somewhere between the two are companies like Brunello Cucinelli, whose high-end cashmere is priced far beyond the reach of the average consumer, and which has been reporting strong revenue growth.
While LVMH’s own top-line momentum remains meagre by comparison, the company has used recent lean times to spruce up its offerings. Christian Dior is outperforming the rest of the group’s fashion brands under new creative director Jonathan Anderson. Its scale also gives it prime access to the most desirable shopping locations.
LVMH’s stock is, at least relatively, cheap. Its shares are priced at 20 times forward earnings, according to S&P Capital IQ, despite starting the year at roughly 27 times earnings — where Richemont still trades. That suggests investors think global wealth creation will favour the already-rich — and that LVMH is a good bet for anyone who thinks that assumption is wrong.