Wednesday, February 11, 2015

Marc Faber on Richemont

Richemont has a lot of good brands, but I see two problems. 

First, the company is catering to the economy of the super rich, and that economy could be vulnerable, especially if asset markets no longer rise in value. 

Number two, many luxury chains have to pay very high prices for stores in the best locations, whether it is in Hong Kong or Zurich, or at the airports. Airport shops cost a fortune. Luxury-goods companies have high fixed costs, and they have to sell a lot of merchandise to cover them.

Some luxury manufacturers, such as Prada [1913.Hong Kong], have had disastrous results of late. I agree that luxury-goods companies are attractive investments long term, as people will buy Cartier and other brands. But I would be relatively careful about these brands and companies in the near term. Tiffany [TIF] just reported that fourth-quarter sales were disappointing, and its shares are off sharply today. [Tiffany fell 14% on Jan. 12.] There could be some disappointments among luxury-goods manufacturers.