James Gard: Welcome to Morningstar. Making another appearance as stock of the week is luxury fashion house Burberry, which is putting out a trading update this week. Now we all know these are tough economic times so the ongoing success of European luxury stocks is baffling to some. Burberry shares are already up 10% this year and similar stocks in France have also got off to a strong start. No sector is completely recession or inflation proof but the luxury sector has that rare quality: pricing power. This means that luxury brands can push through price increases to customers who are more able to afford them.
These prized items – watches, leather handbags, jewellry – are also seen as an inflation hedge because they tend to hold their value. We’re also still in the “self-gifting” phase, says Morningstar consumer analysts Jelena Sokolova in a new report, as people continue to reward themselves for living through difficult times. Some lucky people may even have savings from the pandemic. At the same time, the risks are rising that weaker economic growth may reduce demand for luxury goods. Again, we don’t know long the recession will last in the US and Europe and how bad things will get. Sokolova has looked at previous downturns – SO luxury watch sales tend to struggle but leather goods and footwear tend to be more resilient. She also notes that Burberry sales held up well after the financial crisis. After a near 30% rise in the Burberry share price since last January, the company is now trading just above its fair value of twenty pounds ninety. For Morningstar, I’m James Gard.
