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Luxury Stocks: The Bling Boom Goes Bust

When Kanye West is dissing luxury goods, you know the industry has a problem

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Kanye West — the hip hop artist whose number-one hit “Gold Digger” epitomized the blingy excesses of the mid-2000s — made news earlier this month by going on an anti-luxury-good tirade:

luxury stocks“It’s like [luxury brands and retailers] want to steal you from you, and sell you back to you after they stole it,” adding, “They want to make you feel like you less than who you really are.”

If Kanye West is really turning his back on conspicuous consumption, it is a sign of one (or all) of three things:

  1. The end of days is drawing nigh.
  2. Kanye West is crazy — as in truly suffering from some form of personality disorder.
  3. The luxury goods business is in deep trouble and facing a real consumer backlash.

While the first two explanations are definitely plausible, I’m going to focus on the third. It’s been rough for luxury stocks of late. Coach (COH) has seen its U.S. domestic sales virtually collapse as upstart Michael Kors (KORS) has crowded its turf. But even Kors has hit something of a brick wall of late, and its share price has heading lower since late May on valuation concerns and lower margins.

Going higher upmarket in luxury stocks, you see a slightly different dynamic. Luxury leather goods and drinks conglomerate LVMH Moet Hennessy Louis Vuitton (LVMUY), high-end watchmaker Swatch (SWGAY) and Remy Cointreau (REMYF) has also seen uneven growth over the past two years, though the primary driver here was a crackdown by the Chinese government on bribery and excessive gift-giving.

Returning stateside, the simplest explanation for Big Luxury’s woes are simple supply and demand. There are more luxury brands than ever competing for a customer pool that has been forced to scale back its buying due to years of high unemployment and sluggish economic growth.

But might the winds of fashion be changing, as well? And could demographic trends be at play? In fact, these might be the biggest factors weighing down luxury stocks.

Let’s break down America by its major demographic groups. Though U.S. stocks have long since blown past their pre-crisis highs, and home prices have recovered substantially in most markets, the 2008 meltdown and Great Recession that followed were devastating to the retirement plans of many Baby Boomers. The Boomers are more focused than at any point in their lives on securing their nest eggs for retirement. Bling spending is simply not a priority for all but the highest-income Boomers.

And what about my generation — Generation X?

Article printed from InvestorPlace Media,

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