Defensive luxury

DESPITE talk of a flight to quality, received wisdom tells us that consumers should cut back on fripperies in hard times. Yet luxury firms of all hues are doing remarkably well. Take Apple, the tech giant that only sells high-end products: it has continued to post ever-rising profits and revenues throughout the recession, smashing its own records in the process.

LVMH, the luxury goods firm behind Moet champagne and Louis Vuitton handbags, is another case in point. In the three months to end of September, it grew organic revenues by 14 per cent, with all product categories notching up double digit sales growth.

Burberry, a contender for company of the year in this week’s City A.M. awards, is also in fine fettle, turning its attention to the new wealthy classes in emerging markets. Hermes, now the subject of LVMH’s affections, is finding new custom among the fashionistas in China and India too; in the first half, it posted sales growth of 20 per cent, thanks in large part to these customers.

Yesterday, LVMH said its 17 per cent stake in Hermes was a strategic investment in “one of the jewels of the luxury industry”. This looks like stake building, even though LVMH denies anything of the sort. LVMH trades at a well-deserved five per cent premium to the rest of the sector. This deal makes the stock an even better pick.