Luxury Boom Helps Birkin Bag Maker Overtake a Beer Giant
Comment of the Day

June 18 2021

Commentary by Eoin Treacy

Luxury Boom Helps Birkin Bag Maker Overtake a Beer Giant

This note from Bloomberg highlights an interesting development.

Hermes International, best known for its silk scarves and $10,000 Birkin handbags, is becoming one of the world’s hottest luxury stocks. The shares hit a fresh record on Friday, giving the company a market capitalization of about 130 billion euros ($155 billion) and nudging it above beer giant Anheuser-Busch InBev NV. Hermes, which only joined France’s CAC 40 Index three years ago, has benefited from a boom in demand for luxury goods that showed no sign of abating during lockdowns, while closed bars and restaurants weighed on AB InBev and other brewers.

Eoin Treacy's view

Hermes’ most popular products are in limited supply by design. That helps to create an aura of exclusivity and keeps demand high. It is also a recipe for low growth as price rises are implemented in an orderly manner against a background of deliberately controlled sales. Why then would the share accelerate?

There are two primary reasons. The first is only the name bags are in limited supply and everything else is produced at greater scale. The second is that massive money supply growth inflates the ability of consumer to afford luxury goods. That suggests the accelerating trend is a product of stimulus and is just as subject to the outlook for global money growth as growth stocks.

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