Future Returns: Investing in the Global Luxury Industry

The global luxury industry has had a good run over much of the past decade and signs are pointing to continued strength despite a difficult stretch during the pandemic.

S&P’s Global Luxury Index has beaten the MSCI All Country World Index over the past five years by about 4.3%. It’s been a hotbed for M&A activity, including LVMH’s recent US$15.8 billion acquisition of Tiffany & Co. The sector has proven popular with investors from individuals through to private equity—a pre-pandemic Deloitte survey found 70% of respondents, most of whom were small-medium private equity funds were considering investing in a fashion and luxury asset.

Jessica Gerberi says structural growth themes in the industry have turned luxury stocks from a cyclical to secular growth opportunity.

Gerberi, a senior research analyst with Calamos Investments in Naperville, Ill., was positive on the industry before the pandemic, partly based on the resilience of luxury goods companies, some a century or two old. “Their resilience was just tested in such an unprecedented way with Covid, and Covid’s really been an accelerant for positive change in this industry,” she says.

Bain & Co. finds despite a contraction in the overall global luxury industry due to the pandemic, global online luxury sales grew almost 50%, to about US$59 billion, in 2020, compared to about US$39.7 the prior year. This sales channel is forecast to grow further, from an estimated 23% last year to more than 30% by 2025. Gerberi says the industry may not see a full recovery until 2022 or 2023, but the speedy adaptation to selling online undertaken by many companies offers a compelling reason to consider investing in luxury stocks.

“The strong getting stronger will likely continue to be a theme in this industry,” she says.

Besides the anticipated post-pandemic rebound, growth in emerging markets offers another compelling reason for the sector’s strength. One estimate anticipates the global middle class ballooning to 5.3 billion people by 2030, bringing about 2 billion up the economic ladder. This group is expected to splurge on luxury items, and the industry will reap the reward, particularly in China.

Due to these developments, Gerberi says in a post-Covid, normalized environment there could even be some upside to the industry’s approximate 5% annual growth rate. She shared three tips with Penta on how to invest in the global luxury industry.

Understand Different Exposures

Not all luxury stocks are equally exposed to different elements. For instance, some companies focus on a single brand while others have what Gerberi calls “natural diversification,” meaning multiple brands or that they operate in multiple categories.

“Some of these big luxury conglomerates have built their businesses upon M&A and acquiring new brands, which I think speaks to their ability to balance growing the equity and managing the heritage of their legacy brands,” she says. “But [they are] also keeping on top of current trends and being willing to take a risk on a brand that might not be fully in their wheelhouse.”

She mentions Moncler’s US$1.4 billion acquisition of Stone Island, which brought the down jacket maker together with a streetwear brand. Gerberi says these moves allow companies to tap into certain trends or companies growing at a faster rate than the overall luxury industry.

Geographical exposure comes into play as well. Much of the industry is listed in Europe rather than the U.S., for instance. And though the customer base is often considered from North American or European vantage points, luxury companies serve a diverse, global base of consumers beyond those regions. This means they’re impacted by much broader, global trends.

Embracing Digital Evolution

“Covid really accelerated the digital strategies that companies in the industry are pursuing,” Gerberi says. “And of course they came into the pandemic in varying degrees of development.” This follows other accelerations in online retail, which observers say advanced e-commerce sales and technology by several years during the pandemic.

This evolution is about more than simply having a robust e-commerce site, offering products for sale via third party or increasing the depth and breadth originally offered online. Gerberi says luxury brands have created new digital avenues to engage with their customers and build customer relationships including special sales events, setting up virtual showrooms—even biometric scanning to offer virtual beauty trials.

Investors should watch how companies have embraced this shift, as not all companies have seized the chance to innovate their digital platforms and complement their in-person shopping experiences. “That gap between the haves and have nots has widened,” Gerberi says.

China’s Growing Consumption

The growth of emerging market middle classes is a promising tailwind for luxury goods, Gerberi says. “But in the near term it likely wouldn’t be anywhere as meaningful as the continued growth of the Chinese consumer in this industry.”

In 2019, the Chinese consumer accounted for 35% of global luxury sales. That figure is estimated to rise to 50% by 2025. This may pose attractive investment opportunities in brands with less-established presences in China, offering room to expand their customer base there. Though China-based luxury brands are emerging, globally-recognised brands are expected to be the main driver of this consumption.

Gerberi expects “a good pipeline for luxury consumption” to continue, as China’s Gen Z population ages and gains more disposable income.

Factors like relatively quick economic bounce back from Covid, unemployment returning to pre-Covid levels, and a continued strong appetite for luxury goods bode well for continued sales growth. “All of those things continue to bode well for the outlook for the Chinese consumer with regards to luxury,” she says.

A new investment fund targeting celebrity-founded consumer brands has secured US$40 million in commitments and is rapidly approaching its US$50 million fundraising target, signalling growing investor appetite for alternative opportunities beyond traditional asset classes.

The Global Talent Fund, which has a maximum raise of US$100 million, focuses on building and investing in consumer businesses alongside celebrities, athletes, and influential personalities who play an active role as co-founders rather than simply endorsing products.

The strategy is based on the belief that changes in consumer behaviour, particularly the rise of social media and digital engagement, have fundamentally altered how brands are built and scaled.

GTF founding partner Jeremy Hunt, who is helping lead the fund’s strategy, said consumers increasingly feel connected to personalities they follow online and are more willing to support products developed by those individuals.

“Consumers are searching for content to engage with, and when a celebrity they like or follow takes them on the journey of creating a product or brand, they genuinely feel part of that process,” he said.

The fund is targeting high-growth consumer sectors including wellness, hydration, beauty and recovery, areas Hunt believes continue to benefit from strong global demand and ongoing innovation.

Rather than backing celebrity endorsement deals, the fund is seeking businesses where talent is deeply involved in product development, brand creation and long-term growth.

According to Hunt, authenticity remains one of the biggest differentiators between successful celebrity-backed brands and those that fail.

“The consumer can see clearly if someone is simply being paid to promote a product,” he said. “The winners are typically the brands where the celebrity has genuinely helped build the business from the ground up.”

The model has attracted support from several prominent Australian investors and business families, reflecting broader interest in alternative investments with global growth potential.

Hunt said consumer brands offered a level of tangibility that many investors found appealing.

“Consumer brands are what we touch, feel, smell and taste every day,” he said. “Our investors understand the growth potential in the model, but they also want to be part of the journey.”

The fund’s rapid progress towards its fundraising target comes amid growing recognition that celebrity influence, when combined with strong commercial execution and scalable business models, can create significant enterprise value.

With several high-profile celebrity-founded businesses generating billion-dollar exits in recent years, supporters of the strategy believe the opportunity remains in its early stages.

Future Returns: Investing in the Global Luxury Industry

Why putting your money in luxury makes sense.

With US$40 million already committed, the Global Talent Fund is attracting investor attention with a strategy focused on building globally scalable consumer brands alongside high-profile talent.