The luxury-goods sector has not escaped the effects of the Covid-19 disaster. It will take time to see if the spending patterns of wealthy individuals change permanently, or whether they will be back to normal in time.
The cosmetics, haircare and fragrances business deserves a closer look. Our preferred holding in the sector is the French multinational giant L’Oréal. It released first-quarter sales numbers a few weeks back, and sales had fallen 4.3%. The second quarter could also be ugly. The company’s professional portfolio was more affected than its consumer business because of the widespread closure of salons.
Interestingly, [L'Oréal's] e-commerce platform delivered growth of 53% and now constitutes 20% of sales
Interestingly, its e-commerce platform delivered growth of 53% and now constitutes 20% of sales. Business has resumed in China and rebounded well, and management expects demand in other geographies to recover quickly as lockdown measures are lifted. Let’s hope that they are right.
I have mentioned before that young people posting selfies on Instagram will be good for beauty-product sales. The kids have to look good for those! Mind you, Instagram filters like Butterfly Pretty could be a threat. Butterfly Pretty is an AR (augmented reality) filter that neatens your face and then adds three blue and green butterflies before posting. If you don’t know what I’m on about, look at the Instagram profiles of celebrities like Kylie Jenner, Hailey Bieber, and Dua Lipa.
Beauty companies are well aware of this trend, and are now collaborating with AR artists, as well as their existing make-up artist partners.
As always, the best advice when investing in the luxury industry is to accumulate quality and hold for the long term.
• Theron is CEO of asset manager Vestact.
• From the June issue of Wanted 2020.