Deciphering Google Searches Seen as Luxury Investors' Must-HaveBy and
The new essential for luxury investors is a tool for looking beyond the latest line of Prada purses and Birkin bags. It’s Google searches.
That’s according to Macquarie analysts who say that in a stock-picker’s world, an uptick in exploration via the world’s biggest advertising company is a good sign that a retailer is gaining strength.
Google trends signaled a revenue rebound in Kering SA-owned Gucci about three months before the acceleration in both 2012 and 2016, Macquarie analysts including Daniele Gianera said. They also tipped a slowdown in Salvatore Ferragamo SpA sales six to nine months before it happened in 2015, they said. Ferragamo shares fell more than 30 percent from an April peak through mid-November that year.
Current rising stars include LVMH, Moncler SpA, Prada SpA, Tiffany & Co. and Kering, with the first two trading more cheaply than their peer group, according to Macquarie. Prada has one of the highest correlations between Google searches and revenue growth, while Moncler is in the top two in Google growth trends showing “increasing consumers’ interest in the brand.”
Global luxury has been in a “structural slowdown” since 2014, the Macquarie analysts wrote. This environment produces a “market share game” where “growth can be achieved only by improving conversion of existing store networks and increasing penetration of e-commerce operations,” they said.
Viewing trends on Google -- although volatile and extremely seasonal -- can be a good indicator of a brand’s “temperature,” the analysts said. They see these trends becoming more solid over time as consumers make more purchases online.
In February 2017, Gucci was the brand with the highest annual increase in interest, followed by Fendi SpA and LVMH. This highlights the strength of LVMH’s two largest brands in fashion and leather, said the analysts, who see this continuing in 2017. Kering also comes out positive for most of its brands.
The analysts look at previous revenue growth and compare to Google search trends to establish the relationship between the data points. They then look for both a positive correlation and an increase in Google searches to assign a company a positive score. The only one for which they found no correlation was Kering’s YSL, which they say is due to the mix between core and beauty.
Ferragamo is not showing a turnaround yet, with search interest dropping off and “at least six months before the brand will be able to record a visible change in demand.” Burberry Group Plc may be active on social media and even iTunes, but it’s still negative in Google searches, they said.
— With assistance by Francesca Cinelli