Global slowing growth, high inflation and monetary policy tightening are weighing on general discretionary spending, yet the high-end brands are most immune against lacking consumer appetite. As for now, Asian tourists are mostly absent; we expect pent-up spending will hit the market once all long-haul flights are fully reestablished.
As for now and in contract to general retail, the most recent earnings reports are globally very positive for Luxury companies. The easing of pandemic restrictions in Asia and the return of international travels is likely to be very supportive for luxury companies. Moreover, US consumers benefit from a strong currency which makes high-end shopping attractive. Luxury Goods consumers are far less sensitive to rising energy prices, good news for the next financial results of the group.
On the back of a meaningful wage growth, stable employment and healthy consumer sentiment, discretionary spending is expected to follow through. Current inventory levels at shop levels are low, and the inventory in stock is generally very fresh. This freshness signals a potentially unprecedented opportunity to sell at full prices — a trend that could sustain itself for quite some time even with further inflation pressure.
In particular we like high-end consumer discretionary companies because their balance sheets are in a strong financial shape.