Fashion worth more than finance as Hermes overtakes Soc Gen

5th September 2011

The Guardian suggests this means a luxury handbag maker may now be of more value than an investment banker.

It writes: "The firm behind the famous Kelly and Birkin bags, which can easily cost more than a car, and the Queen's favourite headscarves is now valued at more than €28bn (£24.5bn) on the Paris stock exchange, while SocGen is worth €18bn.

"The disparity means the nimble fingers of a Hermès artisan, who spends up to 24 hours painstakingly stitching a bag with one long waxed thread, are valued 30 times higher than the moneymaking brainpower of a SocGen investment banker."

But is this really true? Certainly as the economy flags, and banks continue to worry about their sovereign bond holdings and grapple with law suits, their shares have had a terrible time of it.

On Seeking Alpha, Brian Nichols considers the latest challenge to banking stocks – a law suit from a US federal housing agency and takes a detailed look at some US shares including JP Morgan and Bank of America.

He writes: "The possible lawsuits could have a long lasting effect on the financial institutions. The situation is bad and comes at a horrible time with investors looking for a reason to sell their stock. There is no doubt the financial sector will be plagued by these developments and experience more loss as new information is released.

"Throughout the last month, I have remained positive and optimistic regarding the economy's future because of the fundamentals. The technicals however send a different message and force investors to look at the psychology of the market or the investor's mindset."

Of course, luxury brands also have to operate in the real economy but are they better protected from the current economic uncertainty?  Certainly any lawsuits tend to be in the other direction, i.e. these firms stopping the production of fakes.

The rich are also often less affected by economic problems and may continue to spend. At the very least, they may operate within a different economic cycle. While the middle classes may be most affected by employment levels and property prices, the fortunes of the better off are more closely tied to stock market.

Luxury brands have also been helped by rising prosperity across Asia, particularly China, where there is a huge appetite for high end brands, though of course even China has not been entirely immune from the economic uncertainty.

For example, rival luxury goods firm Prada's secondary listing in Hong Kong was not plain sailing as Mindful Money reported earlier this summer, partly due to fears about China's economic prospects.

However just one month ago, writing in the New York Times, Stephanie Clifford was reporting that sales of luxury goods had been on the rise for 10 months with an 11.6 per cent  rise in July. But back then she suggested the main driver was the stock market.

She  wrote: "The Dow Jones is up about 80 percent from its low in March 2009. And with the overall economy nowhere near its recession lows, buying nice, expensive things is back in vogue for people who can afford it.

She quoted Karen W. Katz, the president and chief executive of US designer department store Neiman Marcus Group saying: "Our business is fairly closely tied to how the market performs.Though there are bumps based on different economic data, it's generally been trending in a positive direction."

So perhaps this month's figures will not make quite so pleasant reading after turmoil on stock markets around the world. That said it affects banks a lot more. With eurozone sovereign debt problems, low to no growth in France and Germany and law suits in the US, it is unlikely Soc Gen will be making up the ground on Hermes any time soon.

More:

Luxury brands: Takeovers become fashionable again

 

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