In a recent article, I described how The Cult of the
Luxury Brand, Radha Chadha and Paul Husband’s book on the luxury
industry in Asia, could be used to predict the industry’s growth on that
continent.
The
book’s model of Asian luxury consumption growth, known as the “Spread of
Luxury” model, was interesting to me because it reminded me of how Warren
Buffett conceived of Coca-Cola as an investment. Even though the company’s
stock looked fairly valued by traditional metrics, Buffett knew that per capita
Coke consumption abroad was likely to rise until it approached U.S. levels.
Because of that, Coca-Cola’s stock was actually undervalued because the company
could look forward to decades of growth.
Similarly,
based on the “Spread of Luxury” model, the major luxury conglomerates should be
able to look forward to decades of growth as per capita consumption in Asia
outside of Japan approaches Japanese levels. However, what is important is
calculating this growth and quantifying exactly how much luxury companies will
benefit from it.
In a previous post, I made these
calculations for LVMH group, the owner of such brands as Louis Vuitton,
Bulgari, and Marc Jacobs and the world’s largest luxury goods company. I
calculated that the company could look forward to annual growth of about 4.6% for
the next 30 years, resulting in a total annual return of about 5.2% taking into
account dividends and changes in valuation.
Having done so, we will now make these same calculations for Compagnie Financiere Richemont, the owner of such brands as Cartier, Dunhill, and Piaget and the second of three luxury conglomerates profiled in Chadha and Husband’s book.
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