By Roselina Petkova
Jewellery or luxury handbags - this is the dilemma shoppers face in today's market reality. Reports from companies in the luxury sector highlight an interesting trend. There are no great hopes that we will see a full recovery in sales in the sector, but those who are buying prefer to focus on jewellery. Or at least that's what the first reports from the luxury goods sector indicated at the beginning of the year. Richmond's holiday shopping report was the first to give investors hope that we will see the long-awaited recovery. The conglomerate's figures showed that more than half of sales were made by jewellery. Richemont owns Cartier and Van Cleef & Arpels, which are popular with affluent shoppers. Richemont's sales in that division rose 14% in the third quarter, compared with the 4% analysts expected.
"Tiffany was a sleeping beauty. We decided to wake her up." These were the words of LVMH chairman Bernard Arnault at the presentation of the company's annual results. His statement came on the occasion of the good results Tiffany reported for the last quarter of 2024 against the backdrop of the slowdown seen at the group's other fashion houses. Tiffany's physical store revenue was up 9% for the period, and according to Arnault, this is a sign that the conglomerate's strategy is working well in the US jewellery sector. Four years ago, LVMH made a historic deal in luxury goods. Tiffany was acquired for a sector record $16 billion, and according to Arnault, it was an excellent price. In his words, Tiffany's profit for 2024 is twice what it was before the acquisition. Demand for watches continues to be weak, but is also better than expected. Still, analysts note that in tough economic times, it's the handbags that perform well. At the end of February, Hermès presented its annual report and the results were more than good. Sales rose as the luxury group benefited from a strong appetite for its expensive bags during the holiday shopping season. Sales jumped nearly 18% in the fourth quarter. Analysts had expected an 11% rise. The region, which includes China and the Americas, performed much better than forecasts.
The art of investing in bag...
Investing in an Hermès bag, especially the iconic Birkin or Kelly models, has become increasingly popular in recent years as the value of these bags has risen significantly over time. For example, Birkin and Kelly bags can increase in price by 10-15% per year, and in some cases even more. The limited supply of the models helps them to be seen as an alternative investment like art. The bags are handmade from high quality materials and the company controls production to maintain exclusivity. For example, the waiting list for a new Birkin can be long and one can wait for years, which leads to demand increase and keeps resale prices high. Each Hermès bag is painstakingly crafted, often by a single artisan. The use of premium materials such as Togo leather, Epsom leather and exotic leathers such as crocodile and alligator further enhances the value of the bags. And while most luxury items depreciate in value over time, Hermès models tend to increase in value, or at least retain their resale value. In some cases, especially with rare or limited editions, they can sell for much more than their original retail price. In an interview with Bloomberg Businessweek Bg, financial analyst Alexander Alexandrov commented that Birkin bag prices have been rising by an average of 14% over the past 40 years. "The Kelly models have been a bit weaker, historically, with prices rising by about 10%," he explained. Alexandrov adds that over the past 10 years, Hermès bags have been a better investment than Rolex watches, for example, which have appreciated between 7 and 10% on average. There are also some risks in investing in iconic bags. While Hermès bags are known for their appreciation in value, the market can still fluctuate depending on demand and other economic factors.
Hermes presentation for 2024
Despite the slowing economy, we are seeing increased demand for luxury goods in the US, Asia and Europe. "The well-established Hermès brand, the status of luxury and exclusivity, has a loyal consumer base despite the rise in prices. Also key to the good performance is the company's well-developed marketing and distribution network, especially in the US, where there has been a 22% growth in sales," explains Alexandrov. He adds that the market is currently rewarding Hermès shares, with them posting impressive growth over the past three months. "This reflects positive investor sentiment. With the potential revival of China's economy, sales growth is expected to continue in 2025," Alexandrov said.
At the presentation of the Hermès report, it became clear that all divisions grew in the fourth quarter, even the struggling watch business. The largest division, Leather Goods, posted a nearly 22% increase in sales, beating forecasts. Recurring operating income for the year also exceeded expectations. Year-to-date, Hermès shares are up more than 20% since the beginning of this year.
Is jewellery preferred over handbags?
Rising prices in leather goods have made jewellery more attractive to buyers. Both Cartier and Tiffany demonstrated this in their annual reports. "In terms of stock performance - Richemont (the owner of the Cartier brand), reported the biggest rise of just over 80% over the last 12m. outperforming Hermès shares which rose 67% over the same period. Its big rival LVMH (owner of Tiffany), lags far behind, reporting less than 11% growth in 12m," Alexandrov explained. Although China remains in crisis - Richemont's sales in the mainland, Hong Kong and Macau fell 18% in the third fiscal quarter - conditions in this key market do not appear to be worsening. After the US presidential election, the market strengthened, helped by the S&P 500 melt-up and the rise of bitcoin, and Richemont's Americas sales grew 22%. Analysts note that Richemont has several qualities that make its results particularly shining - and not all luxury groups can boast the same. One of them is that it owns two of the most famous names in the jewellery sector: Cartier and Van Cleef & Arpels. Cartier has overcome the downturn in the watch market to become one of the most coveted brands. Van Cleef & Arpels Clover jewellery has become a sensation at Tik Tok. "Both underscore the polarization between the biggest brands, which consumers continue to covet, and everyone else," writes Andrea Felstead for Bloomberg.
Digitization in commerce is also having its impact. "Digitalisation, is definitely changing the luxury goods market. If we're talking about clothes, up until 10 years ago, luxury brands were associated with a glamorous boutique where they welcomed you with champagne. Nowadays, you don't have to travel to Paris for Louis Vuitton and Hermès boutiques. You can order them directly from their website. Not so with jewellery, where consumers still prefer the atelier. However, there is a lot of reliance on successful exposure of the models, through everyday social media posts of celebrities, such as artists and athletes," explains Alexandrov.
There will be dynamic and interesting market to watch for luxury goods in 2025. The choice between handbags and jewellery depends on the personal style and needs of shoppers - handbags offer lasting value, while jewellery adds elegance and a unique accent to any look. Ultimately, the decision is a balance between practicality and the emotional value of the purchase.
