In the land of luxury, the handbag is king

IN THE LAND OF LUXURY, THE HANDBAG IS KING

The luxury sector was, not so long ago, the darling of the European market for several years, thanks in large part to Chinese consumers' love of high-end clothing and accessory brands.

China's problems, in particular the cracks in the property sector and slowing growth, are well documented and now starting to filter through to the luxury retailers themselves.

The surge this year in the cost of gold GOLD, silver XAGUSD1! and platinum PL1! cannot be providing much cheer to jewellery makers either.

Birkin bag maker Hermes RMS has reported a 17% surge in Q1 sales today, maintaining the momentum from last quarter, including in China. A proposed class action lawsuit filed in March from disgruntled consumers over Hermes' conditions to buy one of its "icon of fashion" Birkin bags doesn't appear to have done it any harm.

In fact, in the last 12 months, Hermes shares are the only gainers within the luxury sector, with a 15% rise, while those even of larger rival LVMH MC have lost 11.5% in value. UK retailer Burberry, famous for its plaid designs, has lost over 50% in that time, making it the biggest laggard.

The fortunes of the luxury companies are proving to be quite mixed. Gucci owner Kering KER yesterday warned it expects a 40-45% drop in H1 operating profit, while LVMH, the world's largest luxury group, offered some reassurance with a rise in Q1 sales last week. Italian handbag maker Prada, listed in Hong Kong 1913, reported a 16% rise in sales thanks to demand for its high fashion brand Miu Miu.

Part of Hermes' secret sauce may lay in its bags.

After holding back while Chanel, LVMH-owned Dior and Louis Vuitton raised prices of their handbags more aggressively during the pandemic, Hermes started raising prices more significantly from last year.