Has The Debt Crisis Sentenced Luxury Brand Makers To A Few Bad Quarters?

Includes: BID, COH, GLW, TIF
by: Andrew Boral

Are you looking for after holiday sales? In these difficult times, what lessons can be learned from Steuben about other luxury brand manufacturers. If you are one of the lucky few to have received the gift of Steuben glass, you can appreciate it as an icon of the wealthy. This American brand was the gift of choice for many United States diplomats seeking to impress their foreign counterparts. Steuben was spun-off from Corning (NYSE:GLW) a few years ago. While GLW directed its efforts toward high tech glass for televisions and fiber optics, Steuben focused its expertise in the glassmaking of creating artistic glass. Unfortunately, as of recently this high-end luxury brand will no longer exist.

Is Baccarat SA (BCRA.PA) the next luxury brand to fall? At €139 Baccarat is trading closer to its 52-week low of €125 than its 52-week high of €185. While Baccarat’s distinguished heritage is remarkable, so is the similarity in products produced by Steuben and Baccarat. Similar to Steuben, Baccarat is known for its exquisite crystal products. Clearly, the demand for high-end glass products has shrunk. One less competitor in the crowded glassware marketplace may serve as a competitive advantage for Baccarat. Optimistically, as the recession comes to an end, Baccarat may be well positioned to incorporate Steuben’s demand. Unfortunately Baccarat will have to weather the current recession. Baccarat may have to endure tough times for a few years.

Other luxury manufacturers have also been experiencing trouble. Investors seem wary of brand names such as Tiffany’s (NYSE:TIF), Coach (NYSE:COH), and Sotheby’s (NYSE:BID). TIF is likely to be the best of the bunch. However recently TIF missed one earnings quarter; Tiffany’s share price fell over 10% in trading. The company reported sluggish sales in traditional markets such as the Americas and Europe. Increasing demand from Asia was not enough to offset the weak demand in the other regions. As a correlated stock to other luxury manufacturers, Coach also saw its share prices fall. Similarly, many of Sotheby’s auctions cater to the extremely wealthy collector. Even at this well-known auction house, managers are concerned that the top end of their market may not be bidding in auctions. The days of artworks continually reaching new high prices at auction may be temporarily over. The classics may not be fetching new high prices at least for a while.

As a consumer of luxury goods, there may be bargains. Steuben has been having its final sale for the last several weeks. Tremendous mark-downs are available. Picking up an extra Coach bag could prove temporally fun. Or maybe adding a Baccarat decanter to your collection could put a nice finishing touch on your home. However as investments, the performance of these equities is likely to be lackluster. The macroeconomic picture remains the same. Europe and America are trying to deleverage their debt. This can only happen if the consumer and the governments begin to save more. This means spending less on luxuries and more on productive assets. Consumer staples and durable goods are likely to be leading investments. These investment assets will allow Europe and America to grow their way out of the recession.

I am sorry to say that another handbag or briefcase from Coach is not going to propel our economies out of recession. However, assets that increase employee productivity will do great things for our economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.