LVMH, Hermès and Kering stocks have all reached record highs in the past two months, although the Covid-19 pandemic is still raging throughout large parts of the world, investors keep pushing luxury-goods stocks higher, undeterred by near-record valuations. As the vaccine brings hope that we’ll eventually return to some sense of normality, consumers are bound to refresh their wardrobes. While we probably won’t buy as many suits and may continue to prioritise comfort over trends, this doesn’t mean we’ll all want to keep wearing tie-dye and sweatpants.
Best fashion stocks
lululemon athletica stock has been a juggernaut of an investment, delivering 589% in returns over the last five years. The athleisure company has dominated an industry that continues to garner consumer attention, with the advent of remote work only helping the trend. As we’ve watched formal-wear companies like Tailored Brands go into bankruptcy as overall demand for business attire has diminished, casual clothing companies like lululemon have flourished.
The company’s growth includes strong performance in direct-to-consumer, which increased by 94%. The third quarter set the tone for the ever-important holiday season. While we won’t get those results for a while (currently scheduled for release on March 31), it seems fair to say that lululemon has enjoyed sustained consumer demand. Overall holiday retail sales grew 3%, and given lululemon’s position, it stands to reason that the company was likely one of the benefactors.
Meanwhile, Anita Balchandani, who leads McKinsey & Co.’s apparel and luxury work in Europe, says there’s a “huge pent-up demand for glamour.” According to Lyst, the fashion platform, searches for heels and gowns held up even when people had nowhere to go. And trend forecaster WGSN sees a return to colours and prints amid increasing optimism about a post-pandemic future.
Yet fashion often reacts against prevailing conditions. Faith Popcorn, whose job it is to imagine the future for big consumer groups, says this could manifest in what she calls the “Roaring 2020s” — decorative clothing, high heels and lots of makeup could be a backlash against the leisurewear that characterised much of the year. This would be a relief for the biggest luxury maisons, such as Gucci, Chanel and Louis Vuitton, as well as fast-fashion chains like Hennes & Mauritz AB and Inditex’s Zara.
But any decline in domestic consumption should be offset by a gradual increase in tourist spending, as people from China, the U.S. and the Middle East begin traveling again. This will be particularly important for European luxury groups, including LVMH Moet Hennessy Louis Vuitton SE and Gucci-owner Kering SA. On average, some 50% of luxury sales in Europe come from overseas tourists, according to Flavio Cereda, an analyst at Jefferies.
LVMH, the world’s largest luxury company, owns 75 well-known brands spread across five main business segments — fashion and leather goods, selective retailing, perfumes and cosmetics, wines and spirits, and watches and jewelry. Their most well-known brands include Louis Vuitton, Dior, Sephora, Bulgari, Moët & Chandon, and Hennessy. It’s also expected to close its takeover of Tiffany & Co. this year.
It looks as though lululemon, LVMH, Kering and Hermés are the potential winners to invest in stock for 2021.
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