Conclusions And Final Thoughts On 'The Cult Of The Luxury Brand'

For the past two months, I have been writing a series of articles for the investing site Seeking Alpha about The Cult of the Luxury Brand, a book about the luxury industry’s rise in Asia. In those articles, I have used a model from the book, the “Spread of Luxury” model, to estimate the future growth of three of the industry’s largest companies: LVMH group, Compagnie Financière Richemont, and Kering SA. Using those growth estimates, I have projected the annualized returns a long term investor in those companies might be able to look forward to.

However, there is much more to Chadha and Husband’s book than the “Spread of Luxury” model. The book offers many interesting insights about the Asian luxury market, drawing upon fields as diverse as history, philosophy, and psychology to do so. Moreover, though the long term returns I have projected for the major companies in the industry have been fairly uninspiring, I feel the underlying reasons behind those returns provide interesting lessons about how the market views those companies and the industry as a whole. (Read More)

Valuing Compagnie Financiere Richemont Through 'The Cult Of The Luxury Brand,' Part 1

In a previous article, I described how Paul Husband and Radha Chadha's book The Cult of the Luxury Brand offers us a model for estimating the growth of luxury goods companies in Asia.

That model, the “Spread of Luxury” model, describes how countries advance through several stages of luxury goods consumption. Each stage corresponds to not only a different level of economic development, but also a different level of consumption. Those stages range from “Start of Money,” in which few consumers purchase luxury goods, to “Way of Life,” in which a country’s luxury market is fully saturated. According to Chadha and Husband, the "Way of Life" stage is the end stage for Asian markets as they become fully developed.

In my most recent pair of articles, I used that model to estimate the future growth of luxury goods company LVMH group. Having done so, I will now apply that model to Compagnie Financiere Richemont, another of the world's largest personal luxury goods companies and the owner of such brands as Cartier, Dunhill, and Piaget. 

To do this, we first need to calculate where Richemont's customers come from. This requires us to apply global trends in personal luxury goods sales to the company's sales around the world. Once we have done so, the next step is to predict the company's growth by forecasting the development of its per capita sales in each region. (Read More)

Valuing LVMH Group Through 'The Cult of the Luxury Brand', Pt. 2

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. 

The first company I will make such calculations for is LVMH group. LVMH, the owner of such brands as Louis Vuitton, Bulgari, and Marc Jacobs, is the world’s largest luxury goods company. Thus, it is a logical first choice for our valuation method.

In my last article, I laid the groundwork for these calculations by estimating the company's sales in each of its major sales regions. In this one, I calculate how those sales will evolve and contribute to the company's overall growth over the next several decades. (Read More)

Valuing LVMH Group Through 'The Cult of the Luxury Brand', Pt. 1

In my most recent article, I described how The Cult of the Luxury Brand, Radha Chadha and Paul Husband’s book on the luxury industry’s growth in Asia, could be used to predict the industry’s growth on that continent.

Their book contains a model for the development of luxury consumption in Asia, the “Spread of Luxury” model. In that model, countries advance through several stages. Each stage corresponds to not only a different economic development level, but also a different level of luxury goods consumption. Those stages range from “Start of Money,” in which few consumers purchase luxury goods, to “Way of Life,” in which a country’s luxury market is fully saturated. According to Chadha and Husband, the “Way of Life” stage is the end stage for Asian markets as they become fully developed.

In using the “Spread of Luxury” model to estimate luxury goods conglomerates’ future growth, I will start with LVMH group (LVMHF) (LVMHY). LVMH owns brands such as Louis Vuitton, Bulgari, and Marc Jacobs. It is the world’s largest luxury company, with about three times the sales of its biggest rival.

To apply the “Spread of Luxury” model to LVMH’s operations, we first need to see what its sales in Japan and Asia outside Japan are. This is actually a surprisingly difficult question. (Read More)