Tiffany Stands Out for Exane as U.S. Luxury Battles to Stay Cool

  • European brands tend to guard their perceived exclusivity
  • U.S. rivals risk becoming “ubiquitous, uncool’ as they grow

American luxury brands could learn a thing or two from their European cousins.

While European luxury tends to guard its perceived exclusivity, U.S. counterparts have more discount outlets and lower entry price points. This leads to “meteoric rises and phenomenal crashes,” Exane BNP Paribas analysts led by Luca Solca wrote in a note. Brands achieve outstanding growth and returns as they become “cool,” before “ubiquitous and uncool” momentum erodes their financial metrics and they are eclipsed, they said.

Among American brands, Tiffany & Co. is the closest to a European luxury business model. The jeweler has strong brand equity, remains an appealing takeover target and should not be affected by the proposed border adjustment tax in the U.S., according to the brokerage.

On the other hand, soft luxury companies -- Coach Inc., Michael Kors Holdings Ltd. and Ralph Lauren Corp. -- are seen as less convincing, the analysts wrote. Coach is the most interesting, with plans to buy new assets that could bring new growth and revitalize its core brand.

Michael Kors seems close to the bottom from a valuation point of view, but the brand’s eclipse could persist for some time before seeing “an uncertain meteoric return,” the Exane analysts wrote. Meanwhile, Ralph Lauren has recently started an experiment to inject new mass-fashion retail energy to the “globally decaying designer business model.”

Investing in U.S. luxury is all about betting on the next “meteoric orbit,” or the next quarterly results, said the analysts. Those interested in longer term prospects would need to identify brands before their “first meteoric rise,” but this isn’t always easy as they’re usually private and hard to identify, with a possibly binary investment outcome.

Fundamental investors should consider entering shares at rock-bottom valuation and relying on new management being able to trigger a new boom cycle, they said.

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