Skip to main
  1. Public Live
  2. Alternative Assets
  3. The Biz Models of High-End Luxury Brands
The Biz Models of High-End Luxury Brands

The Biz Models of High-End Luxury Brands

Research analyst weighs in on the economics of legacy luxury brands.

The Biz Models of High-End Luxury Brands
Invest in stocks, ETFs, cryptos, alts, and more. Listen to daily audio shows on market news & trends.
Sign up
Aired Apr 10, 2023
In this episode Ann Berry sits down with Marie Driscoll, Senior Analyst at Coresight Research, discusses the high-end luxury retail market and the business models of Hermes and LVMH.

Ann Berry: Hello, everybody, and welcome to Public Live. I'm your host Ann Berry and in this session, we are getting the lowdown or the down low on the high end luxury retail market and diving into the businesses of Hermes and LVMH. With us now is Marie Driscoll, Senior Analyst at Coresight Research to unpack their business models a little further. Marie, thank you so much for joining today.

Marie Driscoll: Thank you for having me. It's an honor and a privilege.

Ann Berry: Marie, can you just talk about - super high level just to paint the picture for us - the current state of the luxury retail market and how it has been impacted by inflation and a slowing growth outlook?

Marie Driscoll: Sure. So this is 2023. New Year, new time. The last few years, you know just to recap, luxury really skyrocketed during COVID luxury products are the most experiential of all products. And while people were locked in, unable to travel, unable to eat out their lives somewhat constrained, they sought luxury products and a lot of people had additional income because you weren't spending on experiences. So luxury became the new experience. And in fact, the luxury market captured a lot of new consumers. As we ended 2022, there's still you know, in America, there's a lot of pent up demand for travel. We were traveling last year to Europe where you saw lots of luxury purchases transpire in Europe, where in 2021, many of them, and in 2020, they occurred in the US market. The U.S. market took over as the number one market in the last few years where it had been like China are the number one consumers it moved to America. We've seen a lot of shifting happen in the last few years. So as we enter this year, you have a shift back to experiences which consumers want to have, they want to travel and travel has inflationary prices of 25 to 50%. Consumers want to eat out, there's inflation across the board, and the economy is somewhat weakening. So that's one backdrop that's happening. 

At the same time, though, you have the China market opening up. We saw that happen in February. China was really under a lockdown last year so luxury really suffered. So as the Chinese began to travel domestically, and then as this year and next year progressed internationally, they will resume their – we assume they'll resume their love affair with all things luxury. So the big things as we head into this year are the pace of the reopening of China post the pandemic and what was a dampened demand for China for luxury by the Chinese is that resume. And then what's happening in the U.S. economy, there's mounting job losses with the Vigilant fed fighting inflation. The stock market is volatile, and these are factors that impact consumer sentiment and their willingness to spend on discretionary purchases. 

But as I said, during COVID, we got a lot of new luxury shoppers. It's projected that by 2030, about 75% or more of all luxury purchases will be made by millennials and younger. You have a lot of people that discovered luxury and luxury is sticky. Luxury is better quality. It romances people. It impacts the way people think about themselves. And we believe that they'll be trading down in some more commodity type products, like in the brown beans that you buy, maybe in the jeans that you buy.  In apparel, we see a trade down, but luxury we think has stickiness. That said, you know, if you lose your job, you're not going to be buying luxury products.

Ann Berry: Let's talk about stickiness, mobile, let's also talk about it in the context of pricing. I feel as though there are constantly these articles being published about how Rolex watches Hermes bags, have seen prices skyrocket under the guise of inflation in part but also because demand seems to have gone up from these new demographics. Can you talk about how price sensitive or not luxury is? Not all luxury is created equal if you break it down by category for us?

Marie Driscoll: No, no. So not all luxury is created equal and I mean, the real trick of luxury and really any product category is to best match supply and demand. With luxury you want to have demand outpacing supply. And that's what happened during COVID. More people wanted an Hermes handbag or wanted an Hermes bracelet. Then Hermes was able to meet that demand. Some of it was supply chain constraints, and some of that there were more people entering the market that wanted these things.

You also see that in resale if you're a student of the markets, you see that resale has provided pricing transparency into your first purchase. So you could buy a Hermes handbag newer or  Louis Vuitton handbag new and see that in the aftermarket, you can get 80 to 150% of what you paid for. So it's brought a new kind of shopper into the market. Also, if you buy in consignment it is where you can often meet that need for a luxury product today. You don't have to wait six months for it. It's In the aftermarket.

Not all products are equal. Certainly Hermes is, you know, unique in its ability to keep consumers panting for demand of you know their Birkin bag or their Kelly bag. But, and you've seen while Gucci was really driving incredible demand through COVID. By the end of COVID. Really, it became.. it was time to move on to another product. So partly as luxury becomes entwined with high priced designer brands, designer design and fashion are different than true luxury.

Ann Berry: And let's talk a little bit about where Hermes and LVMH specifically fall on the luxury pricing spectrum. Marie, do you expect the higher end brands like there to be more recession proof than mid tier luxury brands? I mean, as you look at overall demand as distinct printers, price sensitivity, where do you see those learned?

Marie: There are two different companies. Hermes has this one brand with sub-brands. Birkin is a brand, but it's really one brand, Louis Vuitton is a company that consists of about 80 different luxury brands. So with LVMH you're getting incredible diversification that spans Sephora and beauty, which is our entry points for luxury and in fact is holding up quite well. DFS, which is another part of their selective retail group. But they have some real winners with Louisville Vuitton and Christian Dior and then they have some more fashion brands like a Kenzo that are more vulnerable to an economy than the LDN, then the Louis Vuitton. And then of course, you have Tiffany's, you have all their jewelry lines. 

So what we saw in 2008 and 2009, is that luxury did not go down as low as other categories and it rebounded more quickly than other consumer discretionary categories. And we think that that will be the case again, this, you know, in this current economic environment, and frankly, this environment is nowhere near what 2008 or 2009 was with the Great Recession. Right now, like we're not even sure if we're in a recession, right?

Anne Berry: Marie, yes. So I think we're not sure if we're in a recession now and it's much more about the outlook. You've talked about Asia demand. Let's call it something else geopolitically that's different today versus in 2008 and that's the impact on Russian demand for luxury goods. Talk to us a little bit about what demand from Russia has looked like in the past and where it stands now, given the conflict with Ukraine?

Marie: Right. So Russia, it is not a support as it was in 2008 or2009. Or, you know, it was part of the picture. But now you have a growing UAE, you have a youth that is entering the luxury market. And so I think that, you know, what's different now is there's more people in the market. We recently presented a Shop talk and in 2000, when we entered this century, 3% of the Chinese were in the middle class, by 2018 53% were. I mean, you have a huge middle class of 700 million people that buy luxury. They may buy low, and they have pent up demand from COVID for the last two years. So that's going to help them this year. The UAE has always sought luxury, but now they're bringing it to their own territory and we see a lot of demand coming there, which will offset the loss of the Russian consumer.

Ann Berry: Talk to us a little bit too, Marie, about direct to consumer and how luxury has been able to sell online, you know, you think about the stereotypical luxury experience, it's very much in person, it's tactile, you see the product, you feel the product, you try the product, if you're paying such high prices, has that evolved?

Marie Driscoll: So their pricing is consistent, you know, the luxury brands are going direct to consumer because they can, they're in selected points of distribution where they want to be often they're renting space in a wonderful department store like a Bergdorf Goodman, and Neiman Marcus or Saks Fifth Avenue or Bloomingdale's. But going direct to consumer means that you hope that you have control of your messaging at all points, and your adjacencies. 

During COVID we saw and we continue to see throughout America, that luxury brands are opening more direct to consumer out physical stores to be where the consumer is because during COVID many consumers moved from metro areas to urban and rural areas. We just did a survey in China and it's more important for the Chinese that they want to discover luxury in physical store locations. And another interesting facet is that they're influenced more by their friends than they are by a KOL. So I urge you folks to check out Coresight’s research and look for our most recent survey on the China luxury consumer.

But so, but direct to consumer is just a way for them to really control what they look like in every point of sale and online. You can get selected products but luxury, is experiential, as you said, and not all the apparel is going to be or the ready to wear, not all the collection is going to be available online. But it's as easy as during COVID the consumers picked up the phone and call their sales associate. And and they were doing one to one selling kind of like one to one live shopping.

Ann Berry: Marie, just to finish our conversation, which has been just so interesting. With respect to Hermes and LVMH in particular, can we just go back to something you touched on early, which was the second hand market? We know that both Hermes and LVMH generate about half their revenue from the leather goods category, which is one secondhand market? And then you've got jewelry and others? Can you talk about the second hand appetite for those different product categories?

Marie Driscoll: Yeah, so I know better the second hand you know, the RealReal's of the world, the best year collective. A lot of it is the leather goods, you know, if you're a shopper and you love luxury goods and you buy some luxury clothing, you see that it drops, unless it's the most iconic of pieces, it drops in value, like 50 to 80%. The handbags hold their value, as I said before, and you get 80 to 150% of what you pay for. The thing about the secondhand market is that you can attract a new consumer to your brand there. A lot of brands, luxury, contemporary are bringing resale on their own branded platform so that they can keep that connection with the consumer. And there's been advances in technology and tagging so that luxury brands can keep track of who owns their product.

All this is to say that secondhand is really very viable. A luxury shopper cares about sustainability. And this secondhand is a feature of sustainability. It shows a prolonged life, it validates a purchase and it validates quality, something that has an extended life. An interesting feature that has come out with the recent RealReal report is that consumers are looking for vintage products and they're looking for handbags that are in fair condition, not necessarily in excellent condition because they want a handbag with the patina of use, which is really interesting. They want to look like they've owned this handbag for 10 years not for you know the last month. Interesting, right?

Ann Berry: That is very interesting.  And part of my last question, which comes to mind if you can get your crystal ball out for us, Marie, and look at the next six to 12 months out? How do you see that trend evolving? And what are some other evolving consumer and luxury retail trends you can see coming.

Marie Driscoll: So I think luxury holds up. I think that, you know, depending on how bad the economy is, you will see an impact. It's more muted in luxury but it you know it does participate in the economy. I think you'll see perhaps people trading into second hand also monetizing what they have in their closet to support their next luxury purchase. 

Additionally, beauty will do well. Beauty has become a form of wellness, it's a form of taking care of oneself. So all the and fragrance has become more important in terms of self expression and taking care of oneself. So I think that we're going to see beauty grow, and you see that caring brings beauty in house. So beauty will become a more important feature of overall luxury and luxury will hold up and luxury has less volatile earnings and they can sooner you know, slow down their manufacturing and again keep their supply demand that equation in balance.

Ann Berry: With that Marie Driscoll thank you so much for joining us Senior Analyst at Coresight Research. That's it folks, for today on Public Live, breaking down what's going on in the high end luxury retail markets. Come back soon.

Marie Driscoll: Thanks, Ann.

You might also like
Contact Us
Check the background of this firm on FINRA’s BrokerCheck.

© Copyright 2024 Public Holdings, Inc. All Rights Reserved.

Market data powered by Xignite.

All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. You should consult your legal, tax, or financial advisors before making any financial decisions. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy.

Product offerings and availability vary based on jurisdiction.

Stocks, ETFs, Options, Bonds.
Self-directed brokerage accounts and brokerage services for US-listed, registered securities, options, and Bonds, except for treasury securities offered through Jiko Securities, Inc., are offered to self-directed customers by Open to the Public Investing, Inc. (“Public Investing”), a registered broker-dealer and member of FINRA & SIPC. Additional information about your broker can be found by clicking here. Public Investing is a wholly-owned subsidiary of Public Holdings, Inc. (“Public Holdings”). This is not an offer, solicitation of an offer, or advice to buy or sell securities or open a brokerage account in any jurisdiction where Public Investing is not registered. Securities products offered by Public Investing are not FDIC insured. Apex Clearing Corporation, our clearing firm, has additional insurance coverage in excess of the regular SIPC limits. Additional information can be found here.

Certain requirements must be met in order to trade options. Options can be risky and are not suitable for all investors. Options transactions are often complex, and investors can rapidly lose the entire amount of their investment or more in a short period of time. Investors should consider their investment objectives and risks carefully before investing in options. Refer to the Characteristics and Risks of Standardized Options before considering any options transaction. Supporting documentation for any claims, if applicable, will be furnished upon request. Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.

Options Order Flow Rebate.
If you are enrolled in our Options Order Flow Rebate Program, Public Investing will share 50% of our estimated order flow revenue for each completed options trade as a rebate to help reduce your trading costs. The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions.

“Bonds” shall refer to corporate debt securities and U.S. government securities offered on the Public platform through a self-directed brokerage account held at Public Investing and custodied at Apex Clearing. For purposes of this section, Bonds exclude treasury securities held in treasury accounts with Jiko Securities, Inc. as explained under the “ Treasury Accounts” section.

Investments in Bonds are subject to various risks including risks related to interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. The value of Bonds fluctuate and any investments sold prior to maturity may result in gain or loss of principal. In general, when interest rates go up, Bond prices typically drop, and vice versa. Bonds with higher yields or offered by issuers with lower credit ratings generally carry a higher degree of risk. All fixed income securities are subject to price change and availability, and yield is subject to change. Bond ratings, if provided, are third party opinions on the overall bond's credit worthiness at the time the rating is assigned. Ratings are not recommendations to purchase, hold, or sell securities, and they do not address the market value of securities or their suitability for investment purposes.

High-Yield Cash Account.
A High-Yield Cash Account is a secondary brokerage account with Public Investing. Funds in your High-Yield Cash Account are automatically deposited into partner banks (“Partner Banks”), where that cash earns interest and is eligible for FDIC insurance. See here for a list of current Partner Banks. Your Annual Percentage Yield is variable and may change at the discretion of the Partner Banks or Public Investing. Apex Clearing and Public Investing receive administrative fees for operating this program, which reduce the amount of interest paid on swept cash. Neither Public Investing nor any of its affiliates is a bank. Learn more.

Alternative Assets.
Brokerage services for alternative assets available on Public are offered by Dalmore Group, LLC (“Dalmore”), member of FINRA & SIPC. “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of 1933 (as amended) (“Regulation A”). This content is not investment advice. These investments are speculative, involve substantial risks (including illiquidity and loss of principal), and are not FDIC or SIPC insured. Alternative Assets purchased on the Public platform are not held in a Public Investing brokerage account and are self-custodied by the purchaser. The issuers of these securities may be an affiliate of Public Investing, and Public Investing (or an affiliate) may earn fees when you purchase or sell Alternative Assets. For more information on risks and conflicts of interest, see these disclosures. An affiliate of Public may be “testing the waters” and considering making an offering of securities under Tier 2 of Regulation A. No money or other consideration is being solicited and, if sent in response, will not be accepted. No offer to buy securities can be accepted, and no part of the purchase price can be received, until an offering statement filed with the SEC has been qualified by the SEC. Any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of acceptance given after the date of qualification by the SEC or as stated in the offering materials relating to an investment opportunity, as applicable. An indication of interest to purchase securities involves no obligation or commitment of any kind.

Cryptocurrency trading, execution, and custody services are provided by Bakkt Crypto Solutions, LLC (NMLS ID 1828849) (“Bakkt”). Cryptocurrency is highly speculative, involves a high degree of risk, and has the potential for loss of the entire amount of an investment. Cryptocurrencies offered by Bakkt are not securities and are not FDIC insured or protected by SIPC. Your cryptocurrency assets are held in your Bakkt account. Bakkt is a licensed virtual currency business by the New York State Department of Financial Services and a licensed money transmitter, but is not a registered broker-dealer or a FINRA member. Your Bakkt Crypto account is separate from your brokerage account with Public Investing, which holds US-listed stocks and ETFs. Please review the Risk Disclosures before trading.

Treasury Accounts.
Investing services in treasury accounts offering 6 month US Treasury Bills on the Public platform are through Jiko Securities, Inc. (“JSI”), a registered broker-dealer and member of FINRA & SIPC. See JSI’s FINRA BrokerCheck and Form CRS for further information.

JSI uses funds from your Treasury Account to purchase T-bills in increments of $100 “par value” (the T-bill’s value at maturity). T-bills are purchased at a discount to the par value and the T-bill’s yield represents the difference in price between the “par value” and the “discount price.” Aggregate funds in your Treasury Account in excess of the T-bill purchases will remain in your Treasury Account as cash. The value of T-bills fluctuate and investors may receive more or less than their original investments if sold prior to maturity. T-bills are subject to price change and availability - yield is subject to change. Past performance is not indicative of future performance. Investments in T-bills involve a variety of risks, including credit risk, interest rate risk, and liquidity risk. As a general rule, the price of a T-bills moves inversely to changes in interest rates. Although T-bills are considered safer than many other financial instruments, you could lose all or a part of your investment. See Jiko U.S. Treasuries Risk Disclosures for further details.

Investments in T-bills: Not FDIC Insured; No Bank Guarantee; May Lose Value.

Banking services and bank accounts are offered by Jiko Bank, a division of Mid-Central National Bank.

JSI and Jiko Bank are not affiliated with Public Holdings, Inc. (“Public”) or any of its subsidiaries. None of these entities provide legal, tax, or accounting advice. You should consult your legal, tax, or financial advisors before making any financial decisions. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy.

Commission-free trading refers to $0 commissions charged on trades of US listed registered securities placed during the US Markets Regular Trading Hours in self-directed brokerage accounts offered by Public Investing. Keep in mind that other fees such as regulatory fees, Premium subscription fees, commissions on trades during extended trading hours, wire transfer fees, and paper statement fees may apply to your brokerage account. Please see Public’s Investing’s Fee Schedule to learn more.

Fractional shares are illiquid outside of Public and not transferable. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see our Fractional Share Disclosure to learn more.

Investment Plans. US members only. Investment Plans (“Plans”) shown in our marketplace are for informational purposes only and are meant as helpful starting points as you discover, research and create a Plan that meets your specific investing needs. Plans are self-directed purchases of individually-selected assets, which may include stocks, ETFs and cryptocurrency. Plans are not recommendations of a Plan overall or its individual holdings or default allocations. Plans are created using defined, objective criteria based on generally accepted investment theory; they are not based on your needs or risk profile. You are responsible for establishing and maintaining allocations among assets within your Plan. Plans involve continuous investments, regardless of market conditions. Diversification does not eliminate risk. See our Investment Plans Terms and Conditions and Sponsored Content and Conflicts of Interest Disclosure.

Market Data. Quotes and other market data for Public’s product offerings are obtained from third party sources believed to be reliable, but Public makes no representation or warranty regarding the quality, accuracy, timeliness, and/or completeness of this information. Such information is time sensitive and subject to change based on market conditions and other factors. You assume full responsibility for any trading decisions you make based upon the market data provided, and Public is not liable for any loss caused directly or indirectly by your use of such information. Market data is provided solely for informational and/or educational purposes only. It is not intended as a recommendation and does not represent a solicitation or an offer to buy or sell any particular security.