How luxury brands can rise from the ruins of the riots in Paris and why you should consider buying shares when others are fearful

This week’s images of torched and looted upmarket Paris boutiques present a dilemma for those who invest in luxury goods companies.

Has this destruction further delayed a revival in the $350billion luxury goods industry, inflicting yet more damage on the shares of Hermes, Kering, LVMH, Richemont and other listed groups that control the top handbag and jewellery brands?

Shares in Kering, owner of Gucci, tumbled by 17 per cent yesterday. Disappointment over the fashion house’s sales was exacerbated by fears of further unrest.

Hermes and others are ramping up security at their shops. Yet the anxiety persists that pictures of civil unrest will make Chinese shoppers reluctant to return to France and other parts of Europe.

At the peak of the post-pandemic boom, the Chinese accounted for one-third of total worldwide luxury expenditure.

But today they make up just 22 per cent, according to the Bain consultancy, as a result of the country’s property crisis and unemployment among the young.

This week Hermes became the latest name to cite the China crisis as the reason for a dip in third -quarter sales.

Can LVMH and the rest rise from the ruins, aided by America’s newish taste for bags and baubles, a shift facilitated by AI?

James Harries, co-manager of the STS Global Income & Growth trust, suggests we should look beyond luxury’s predicament to the sector’s fundamental draw, which is ‘the deeply ingrained desire for people to show off their wealth and impress others’.

If you believe in buying shares rather than bags when others are fearful, here are some suggestions for your luxury share shopping list.

LVMH – the unhappy giant

In Paris, mobs pillaged LVMH’s Sephora beauty stores and its Celine shop.

The wreckers also targeted the Galeries Lafayette emporium in the capital and stores in other cities.

But even before these attacks, shares in LVMH were tumbling. The price is down by 41 per cent to €383 since January, which is close to its level in the 2020 pandemic. This descent is largely due to the 5pc drop in sales in three months to September which was aggravated by the Chinese slump.

The group, which owns Dior, Louis Vuitton and Tiffany, is also seen as failing to cater for twentysomethings seeking a bag that costs £1,000 rather than £10,000.

As Luca Solca, analyst at brokers Bernstein, and others are emphasising, attracting these aspirational consumers is key to luxury’s turnaround.

These woes mean that Bernard Arnault, LVMH’s 77-year-old boss, is the world’s 16th richest person; in spring 2024, when the shares were €844, he led the billionaires’ league.

Despite the issues, as many as 14 of the 27 analysts that follow LVMH rate the shares a ‘buy’. Evidently, they trust Arnault’s renowned acumen.

But such are the challenges facing LVMH that backing Arnault’s celebrated resolve is only for those with plenty of patience.

Bling brought low

The fortunes of the other players in luxury seem to rely on delivering a bag that is reassuringly expensive – and on supplying jewellery with that special something.

At present, although demand may dip around next month’s US mid-term elections, Americans appear willing to splash out on bling. Some perceive a bracelet to be a better store of value than a bag in a challenging era.

Analysts’ enthusiasm for shares in the Swiss group Richemont is based on the allure of the glittering wares made by its Cartier and Van Cleef & Arpels jewellery houses – whose stores were not spared in the Paris riots.

Indeed, Richemont seems so sure of long-term demand for precious stones that it may join a consortium to acquire the diamond miner De Beers.

Richemont stands at 161 Swiss Franc (SFr). The average analysts’ target price is 226 SFr, suggesting it may be a share to put on your list. Note that Arnault – who covets Cartier (modelled by actress Lily Collins, pictured) – likes the company enough to have taken a personal stake.

Since the start of the year, there has been a 42 per cent stock decline in the shares of Hermes to €1,238. This is the worst performance since it made its stock market debut in 1993.

This month analysts at UBS even declared Hermes shares to be a ‘sell’ on the basis that the increased supply of ‘pre-loved’ Birkin bags could undermine the exclusivity on which this €130billion company is built.

Other analysts are more sanguine. But a bet on revival could take a long time to pay off, and a bid is most unlikely. The Paris mob also descended on the store of Gucci – the largest house in the Kering empire.

Following this week’s dispiriting results, analysts suggest holding the shares, which, at €178, are 72 per cent lower than five years ago.

There may be even more pressure than before on boss Luca de Meo, who was drafted into Kering to restore its former glory, but this is another shopping list pick only for patient investors.

Cool Britannia

Paris may be the traditional home of luxury, but London also boasts illustrious players – so perhaps some UK companies should be on your list.

This week the British handbag maker Mulberry reported a 28 per cent bounce in US sales thanks to its Back To The Mulberry Spirit campaign. Under this strategy, 60 per cent of items are priced below £1,000 to appeal to the younger, aspirational clientele.

Mulberry shares have jumped by 116 per cent this year to 227p. Good news for Mike Ashley, the acquisitive founder of Frasers Group and luxury fan – he has a 37 per cent stake in Mulberry.

Another British beneficiary of Americans’ readiness to spoil themselves is Watches Of Switzerland whose shares have soared 57 per cent this year to 745p.

The price was 654p when this column last month highlighted the company’s success in selling timepieces such as the Rolex Submariner to America’s wealthy.

It is interesting to note that US bank Goldman Sachs this week raised its target price for Watches of Switzerland shares to 920p.

Burberry shares are down by 18 per cent this year to 1,040p, highlighting continuing concern over China. But Britishness is resonating in America, where Burberry bags like the Cotswolds, priced from £1,595, have gained a new clientele.

Goldman Sachs also believes in Burberry, setting a target price of 1,250p for the shares, which I bought after following my own advice at 724p in the company’s hapless summer of 2024.

Mike Ashley is an investor, too, although he seems this month to have slimmed down his stake to 6 per cent... but who knows what he could be plotting?