During the all-important holiday shopping season, luxury retailers are using the allure of vintage products and bygone eras. Thomson Reuters analysis reveals who's finding the most success with this marketing strategy.
No luxury brand would say it has ever been easy to convince consumers to pay a premium price for its goods, but in recent years, new facets to that challenge have emerged. Among older consumers, wage stagnation has made steep prices a harder sell. As for younger customers, highly coveted Millennials – the largest sector of the United States population, and a demographic with a reputation for spending – have proven to be elusive because they prefer experiences (a trip to Iceland, say) over things (like luggage for such a trip).
This holiday season, luxury retailers are looking to overcome those hurdles and connect with their customers by creating social media-ready experiences. Thomson Reuters analysis of the luxury sector shows the retailers who are experiencing the most success with this tactic are those that can call upon their storied pasts to create a sense of legacy and heritage.
The power of vintage
Some examples: Louis Vuitton unpacked its “Volez, Voguez, Voyagez” (“Fly, Sail, Travel”) exhibition in downtown New York and Tiffany recently opened a real-life café, 56 years after the movie “Breakfast at Tiffany’s” made the New York jewelry store famous. Other luxury retailers are reviving vintage products, like Gucci bringing back its vintage logo belt. The strategy of bringing “vintage” to the forefront evokes an emotion that can create or strengthen the relationship between the customer and the brand.
To turn to Louis Vuitton once again, its exhibit takes visitors on a journey back in time to when travel was luxurious and refined. Passengers dressed up because they felt special and excited about going on an adventure. Therefore, the viewer wants to go along and feels a sentimental bond with the brand and products. The exhibition opening is timed for the holidays and shoppers can purchase small goods after the exhibition in the visitors’ store, or at a nearby pop-up store.
When it comes to global demand for luxury goods, Hermes and LVMH are the industry leaders. They rarely offer discounts, either online or at brick-and-mortar stores, because they simply don’t have to. They know their core consumer is willing and able to pay full price. Still, because of the strong demand for their products, their vintage bags can be found in the secondary market.
In a collaboration with StyleSage Co., which analyzes retailers, brands and products across the globe, Thomson Reuters discovered that two of the most popular vintage styles of Hermes handbags, the Kelly and the Birkin, are averaging a current price of $16,894. The styles are highly coveted, and also traded on luxury resale sites like The RealReal, Fashionphile, What Goes Around Comes Around, and Neiman Marcus Last Call. Once introduced online, 5 percent of these bags sell out within two weeks. The remaining bags do not go on sale.
Across the luxury industry, mixed success
Meanwhile, across other luxury brands that don’t have quite the same “heritage” appeal as more established fashion houses, StyleSage Co. did discover downward price movements from a year ago. This is likely due to the channels they’re trading in (like department stores), and due to currency fluctuations due to their exposure in Europe. Fendi and Mulberry have decreased prices by as much as 23 percent and 22 percent, respectively. Coach has decreased its prices by as much as 16 percent. In an effort to escape massive product discounting and weak profits, it has proactively been removing its merchandise from department stores. Contrast all of this to Christian Dior (owned by LVMH), where accessories average prices have gone up 27 percent compared to last year.
Despite facing a tougher basis for comparison, Coach parent brand Tapestry, LVMH, and Hermes are expected to see robust growth on both the top and bottom lines. Analysts polled by Thomson Reuters are optimistic towards LVMH Fashion & Leather Goods growth this holiday season. This bodes well for the retailer, since it is LVMH’s strongest business segment, and makes up the biggest portion of its total revenue (33.98 percent.) What’s more, according to the StarMine Earnings Quality Model the retailer’s cash flow level and operating efficiency looks healthy. And, its credit looks strong, with a robust credit score of AA-.
A happy holiday season for stockholders
As an equity investment, Hermès looks as expensive as its Birkin bag. Thomson Reuters StarMine Intrinsic Valuation (IV) model accounts for the systematic biases that our quantitative research team found in sell-side estimates. Thus, the faster the expected growth rate, the more optimism bias. More-distant estimates are more optimistically biased than nearer ones.
For Hermès, after adjusting LTG estimates for optimism bias, the StarMine IV model places fair value at €195.20 per share. In contrast, the market price is €442.85 per share. Plugging in today’s price and solving for growth suggests that investors are optimistic. Hermès market expectations are high with an implied 10-yr CAGR of 19.6 percent.
Still, the retailer is another favorite for the holiday season. Its Earnings Quality Score is a robust 99 out of a possible 100, which tells us that Hermes earnings are coming from sustainable sources, since it has strong cash flow, operating efficiency and accruals.
On the flip side, analysts polled by Thomson Reuters are bearish on Salvatore Ferragamo and have been lowering earnings estimates. The retailer is expected to see a drop of 51.1 percent in earnings. Its StarMine Price Momentum model suggests that negative stock price momentum is against the company, as it continues to get hit by negative FX impact. Also, customers are not gravitating towards its latest product launch.
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