The luxury market is at a crossroads, with a clear divide emerging between legacy brands and those targeting a more aspirational clientele. According to Maurits Pot, CEO of Tema ETFs, high-end brands like Hermès International SA and Ferrari N.V. are poised for continued success, supported by their loyal, affluent customer base. Conversely, more aspirational names like LVMH-Moët Hennessy Louis Vuitton and Burberry Group plc are facing increased vulnerability due to shifting consumer preferences and economic slowdowns in key markets like China and Europe.
Pot, in an exclusive interview with Benzinga, highlighted the growing differentiation within the luxury sector. “Luxury is going for a turnaround, and we’re seeing a greater distinction between true luxury and aspirational brands,” he stated. Recent underwhelming performance from companies like LVMH, which reported disappointing results, is a reflection of the macroeconomic challenges facing the industry.
Pot emphasizes the importance of recognizing this divide for investors. “Investors should now focus on a clear distinction between high-end brands and those catering to more discretionary spending,” he advises.
China’s Stimulus: A Mixed Bag for Luxury
While China’s fiscal stimulus has generated initial optimism within the luxury market, Pot expresses skepticism about its long-term impact. He argues that government spending is likely to prioritize industries more central to China’s economic priorities, rather than luxury goods. “I think the luxury sector got a premature boost from the China stimulus, but ultimately not a boost that is really warranted,” he said. Pot anticipates that the Chinese government will prioritize domestic consumption over high-end international luxury, casting doubt on a significant rebound in Chinese-driven demand.
India: Emerging Luxury Market
As China’s growth slows, India’s burgeoning middle class and expanding economy present a potential opportunity for luxury brands. Pot sees India as a potential growth driver for the luxury sector. “As China slows, does Indian luxury demand replace waning Chinese demand? That’s a key question for 2025,” he said. With brands like Dior investing heavily in the Indian market, the country’s growing presence in the luxury space is undeniable. “2024 will likely be a tough year for the luxury sector, but I think there’s reason to believe that 2025 could look better, especially if India continues to emerge as a key luxury market,” Pot added.
Tariffs and the U.S. Election: Potential Impact on Luxury
Looking ahead to the U.S. elections, Pot expressed his thoughts on the potential impact of tariffs on the luxury market. While tariffs haven’t directly targeted luxury goods, he warns of possible indirect consequences, particularly for industrial goods like cars. “I think tariffs are going to focus on industrial output before consumer goods, but luxury could get caught up in it eventually,” he added.
Tema Luxury ETF: A Cautious Approach
Pot also shared insights into how Tema Luxury ETF (LUX) is navigating these market shifts. With nearly 20% of its portfolio in cash, the fund maintains a cautious approach, particularly towards discretionary luxury. “We’re overweight on really high-end luxury, and underweight on more discretionary luxury,” he explained. This strategy prioritizes timeless, high-end brands like Ferrari, Hermès, and Compagnie Financiere Richemont SA, which have proven more resilient to economic downturns.
The luxury market is facing a period of significant change. The divide between high-end and aspirational brands, coupled with the potential impact of economic slowdowns and evolving consumer preferences, will continue to shape the industry’s trajectory. As investors navigate this dynamic landscape, understanding the nuances of the luxury market and focusing on the right brands will be crucial for success.
