Advertising space
Premium brands benefit from global reopening
Macro

Premium brands benefit from global reopening

In Europe we have already seen strong growth in the first quarter in cosmetics, hotels and luxury brands.
Imagen del autor

27 JUN, 2022

By Gillian Diesen

featured
Share
LinkedInLinkedIn
TwitterTwitter
MailMail

As the world reopens its borders and international air travel resumes, consumer premium brands sectors are experiencing a strong growth, driven by pent-up demand for long-awaited travel and vacations, including business –bookings for meetings, incentives, conferences and exhibitions are already strong-.

This also benefits the leisure, hotel and commercial industries. It should favour the food and beverage industries, as restaurants and catering had ceased to a greater or lesser degree in much of the world during the pandemic. It also improves sales of cosmetics and spirits, where margins are especially high.

Strong growth in the first quarter

Indeed, in Europe we have already seen strong growth in the first quarter in cosmetics, hotels and luxury brands. Although some premium brands have been able to experience short-term volatility due to covid lockdowns in China, as a whole the luxury industry shows very solid results, exceeding consensus forecasts. In the US, in particular, average sales growth has reached 30% in some luxury conglomerates.

In fact, its distribution and wholesale model has improved dramatically in recent years, from department stores to dealerships. Also, record sales have been seen in China, with high average selling price, more than offsetting the lower traffic. In addition, the expansion of premium brands continues to mature in other emerging markets beyond China, as well as in new markets, as cosmetics for men.

To this is adds, after two years of restructuring costs and investments, some stronger and more sustainable margins than ever before. It highlights the investment made in digital channels, which has played an important role in mitigating the impact of lockdowns, making premium brands accessible to new consumer groups, younger, lower-tier Chinese cities and Central America. Thus, by 2019, online sales represented only 12% of total luxury brands sales and 22% was reached already by 2021.  In fact, major brands in these industries have created partnerships with also major e-commerce platforms and the future is omnichannel, digital and physical.

Premium brands already went through one of the most serious crisis in 2009

Although the war in Ukraine and international sanctions on Russia raise significant concerns about the global macroeconomic and geopolitical situation and premium are not immune, as they depend mainly on consumer sentiment, markets have already corrected significantly, especially in consumer-related stocks, so valuation multiples are attractive in best-in-class companies.

These companies already went through one of the most serious crises in their history in 2009 and by 2020 they resumed the growth and superior profitability path.  They reduced costs and controlled inventories, returning to record operating margins, without having to resort to credit to finance their growth.

Protected against inflation

After all, companies with premium brands have strong pricing power and high gross margins, so they are relatively well protected against rising inflation. In many cases, they are less affected by the logistical and supply constraints that affect other sectors, thanks to their end-to-end control and local manufacturing.

Specifically, they present five characteristics that provide them with long-term resilience: differentiation, experience, brand integrity, digital integration and operational excellence, with superior margins and cash flow generation, sustainable growth, with brand and product ecosystems around the world, from a lipstick or leather products to haute couture and jewellery worth hundreds thousands of dollars.

Advertising space

Related articles

The Japanese yen: US data will be decisive
26 MAR, 2024   |   

By RankiaPro Europe

The Importance of Behavioural Finance
25 MAR, 2024   |   

By RankiaPro Europe