Who Says Luxury Is Dead?

Details

Created on Friday, 19 October 2012 18:10

Written by Sara Nunnally, Editor, Inside Investing Daily

Hits: 427

Did you ever think you'd hear of a 60% profit gain from an Italian company? Or a 19% revenue spike?

In this economy, you'd be more likely to believe the opposite. The European debt crisis has dimmed the prospect of whole countries, but some companies are escaping the crisis by heading to greener pastures.

Now, as unlikely as these big substantial gains seem, let me make them sound a little more improbable.

These gains come from Prada SpA, and it's been selling $3,000 bags and $950 shoes like hotcakes outside of its traditional markets.

Indeed, the company saw its sales increase by 45% in the Asia-Pacific region for the first half of 2012. It opened four new stores in that region, three in Africa, one in the Middle East and two in South America.

And get this: Prada, while limitedly traded on several German exchanges, is lucratively traded on the Hong Kong exchange (symbol: 1913). More than 2 million shares per day... and shares are up more than 71% so far this year.

This is a perfect example of my keystone philosophy, the Great Money Shift.

Over the next decade and more, most developed economies are going to see their wealth fall, while emerging growth markets are going to surge. Let me show you.

Here's the world in 2007 (represented by per capita GDP), just before the financial crisis hit.

And this is the year 2025.

We see huge amounts of money leaving places like Japan, Western Europe and the U.S., and we're seeing impressive growth in China, the Middle East, India and key markets in South America.

Companies that take advantage of this shift are seeing big growth... just like Prada. And Christian Dior, Lanvin and Louis Vuitton.

Luxury goods are not dead; they're just "expats" living it up in emerging markets.

Even perfumes are seeing growth from emerging markets. Givaudan, the Swiss fragrance and flavor maker, said, "This is our main growth segment. They [emerging markets] keep up fantastically well, which is vindicating our strategy."

Givaudan says emerging markets make up 43% of its overall sales and is helping offset weakness in Europe.

Spain-based Inditex SA (ITX), the world's largest clothing retailer and owner of the Zara clothing chain, saw shares gain 58% this year as its Zara chain opened 32 locations in China. Earnings gained 32% in the first half of 2012, and revenue increased 17% because of its global expansion.

The shift is happening, and it's happening fast.

From Bloomberg:

The combined wealth of all individuals has fallen this year for the first time since the financial crisis of 2007-08, with a drop in austerity-hit Europe outweighing a small increase in China, a Credit Suisse report has found...

The report comes after consultancy Bain on Monday forecast global luxury sales growth would drop to 5% at constant currencies this year from 13% last year.

Meanwhile, the latest trading update from LVMH, the world's biggest luxury group, showed a sequential slowdown in sales growth for the third quarter running as Chinese and Europeans cut spending.

The Credit Suisse report forecast total household wealth would increase by an average of 8% annually over the next five years, driven by emerging markets like China, Brazil, Malaysia, Russia or India.

Mean wealth per adult is projected to rise to $67,000 by 2017 from $48,500 in 2012.

Today, emerging market consumers account for around 50% of luxury sales for the big luxury names, a proportion that Credit Suisse expects to increase, given the faster wealth creation in emerging markets.

This is a huge macro trend that will be immensely profitable -- for luxury companies, everyday consumer goods manufacturers and individual investors.

I'm seeing a very long shelf life for this shift. It's a global and epic trend that will change the face of the world economy. And we get to see it in real time.

Prada shares are down today on the Hong Kong exchange, so watch for dips below $60 for a good buying opportunity. Shares might even drop to $55, where I would expect a bounce.

Happy Investing,

Sara

Editor's Note: In the midst of one of history’s worst economic disasters, brave and savvy investors were able to net life-changing gains, bigger than any you or I have likely ever seen before. How were they able to do this? It turns out that crisis can signal massive opportunity, if you know where to look. And with an epic meltdown imminent, it’s time for you to find your profit potential. Click here for all the details.