Investing in the luxury industry

LUXURY C

Luxury goods are Veblen goods whose demand increases due to their exclusive nature and appeal as a status symbol.

The stock market in Kenya has been see-sawing. But, what about investing in the luxury industry? This is buying luxury shares and non-traditional assets. Luxury goods are Veblen goods whose demand increases due to their exclusive nature and appeal as a status symbol.

For instance, the Patek Philippe watch is a worthy buy, as the company recently added prices to its timepieces by $10,000 (Sh1.43 million) and it is likely to hold and increase in value over time. Hermès group, creator of the famous, most desired and most counterfeited bag, the Birkin bag recently had its market value soar past 200 billion euros, surpassing the Swiss drugmaker Novartis AG.

BDL Patek Philippe-

Personalised watch from Patek Phillippe. PHOTO | COURTESY

But are there Kenyans who have invested in shares of luxury brands such as Hermes or Ferrari?

Veronica Karanja, a Kenyan who lives in Paris, France is a shareholder of the Louis Vuitton Moet & Hennessy (LVMH) group.

“I bought my first share at 154 euros in 2016, a share is currently trading at more than 800 euros in February of this year. Look at that increase. How many companies perform similarly?” says Ms Karanja.

“My friends studied about the luxury industry and taught me how to follow the luxury brands that were listed on the French bourse and that is how I started this journey and acquired more shares from the group. I felt that this was a good long-term investment.”

LVMH is the largest luxury group in the world and it is home to 75 brands inclusive of Louis Vuitton, Dior, Hublot, Berluti, Tag Heuer, Chopard, Loro Piana, Fenty, Sephora, Belmond hotels and Dom Perignon, (a champagne), among others.

Bernard Arnault and his family own more than 48 percent of LVMH shares with almost 64 percent of the voting rights. He is currently the wealthiest man globally at a net worth of more than 190 billion euros (a position that he often juggles with Elon Musk).

BD LUXURY 5

In 2023 the revenue of the company was 86.2 billion euros with a retail network of more than 6,000 stores worldwide. Why would you not buy shares from the company where Louis Vuitton was the first luxury brand with more than 10bn euros in annual sales?

What are some of the reasons the LVMH share price has risen over the years?

The group is well established globally through its acquisitions such as Tiffanys at $16.2 billion which gave it a strong foothold in the US and further its brand presence by the use of JayZ and Beyonce as friends of the brand.

The expansion of stores in luxury boutiques such as Dior, and Louis Vuitton, and alcohol (champagne and cognac) retail in the US and Chinese markets. India is now a major investment focus of LVMH.

Succession planning in the group was another reason for Ms Karanja to keep purchasing shares in LVMH.

BDL DIOR

Yves Saint Laurent and Dior lipstick in pink and red shade closeup top view. PHOTO | SHUTTERSTOCK

“Succession planning shows wealth preservation through a transfer process. Arnault has done this very well with his five children. [Bernard Arnault and his family own more than 48 percent of LVMH shares with almost 64 percent of the voting rights.]

“In 2022, the shares moved from 756.30 euros to 770.70 euros ($828.48) early in the morning after an announcement that his daughter Delphine Anault who was the Louis Vuitton executive vice president had become the CEO of Christian Dior. That was an indicator of stability to the investors,” she added.

“He has also implemented a structure whereby the children cannot sell their shares for 30 years, which is almost like a Sartrian no exit to manage family conflict. Long-term wealth preservation.”

For luxury lovers, there is a plus to investing in the shares.

“There are benefits of being a shareholder at LVMH, it pays dividends twice a year. We get access to Champagne View, the programme of physical and virtual private tours of the Champagne and Cognac cellar tours. There are also special offers on new wines, spirits and champagnes from the Club Private Collection,” explains Ms Karanja.

BDL Chopard

Part of precious jewellery high Jewellery collection La Maison Chopard in a jewellery store. PHOTO | SHUTTERSTOCK

Raymond Muroki is another Kenyan buyer of luxury shares.

“I studied luxury in France and realised that the brands perform very strongly, especially Hermès, LVMH and Richemont. I was fascinated by family-owned businesses that are globally established and create goods of obsession,” he says.

“I invested in Hermès in 2019 and I bought my first share at roughly 490 euros, that year. This year, one share is trading at more than 2,000 euros and I bought several shares before the price became very high. The group also announced that its 22,000 employees worldwide would get a bonus of 4,000 euros this year. If I sell the shares and convert to Kenya shillings, I will have made good money,” he says.

Hermès was founded in 1837 by Thierry Hermès but the group has also recently had an interesting moment in the media. One of the family members, Nicolas Puech, 80, a secretive fifth-generation descendant of the family, intends on leaving half of his €12 billion fortune to the gardener.

Ms Njeri is a global luxury adviser. E-mail: [email protected]

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.