Chinese shoppers have spent with gusto so far this year, splurging on luxury goods from Hermes and LVMH after the strict lockdowns that curbed their shopping last year were lifted.

The two companies’ stellar first-quarter results put to rest concerns that well-heeled Chinese consumers had lost their taste for pricey handbags and jewellery during the pandemic. 

Even so, investors may play wait-and-see on their lesser luxury rivals who’ve yet to release sales results.

“The strongest players have already reported,” said Zuzanna Pusz, an analyst at UBS Group, in an interview on Friday (Apr 14). “We expect more polarisation in the luxury space because Chinese consumers are picky and they want to buy brands that are strong.” That gives the hotter labels more power to raise prices, she added.

LVMH Moet Hennessy Louis Vuitton’s results sent shares of the owner of Christian Dior and Tiffany to a new record. The rally briefly lifted the French luxury powerhouse into an exclusive club of the world’s 10 most valuable companies last week and made billionaire chief executive officer Bernard Arnault even richer.

The company’s largest label, Louis Vuitton, crossed the 20 billion euro (S$29.5 billion) revenue milestone last year and recently named star musician Pharrell Williams to be its menswear designer, a headline-making move across media. Hermes International’s quarterly sales showed all product categories and geographies growing by double digits, except for the small beauty division. 

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“Hermes will always defy gravity” because demand exceeds the supply of its sought-after Kelly and Birkin bags, Pusz said. The brand’s market capitalisation recently surpassed the 200 billion euro mark for the first time.

The galloping pace of growth at LVMH and Hermes have made them darlings of investors at a time when even the titans of the technology industry have seen sales increases slow to a relative trickle. 

Among other luxury players, Pusz places companies such as Salvatore Ferragamo, Burberry, Omega-owner Swatch and Kering in a weaker category with less appeal, especially in China. 

Kering’s Gucci, in particular, is going through a transition after naming a relatively unknown designer, Sabato De Sarno, to lead its creations. Its performance in China last year trailed its major rivals. De Sarno’s first collection will be presented in September and won’t be available in stores until early next year. Kering, which also owns brands including Saint Laurent and Balenciaga, reports sales on Apr 25.

Chinese consumers, at home and abroad, represented about a third of total personal luxury goods spending before Covid-19. It will take at least two years for them to return to that level, according to Jonathan Siboni, the founder and CEO of Paris-based data intelligence firm Luxurynsight. “It will continue to accelerate, there’s potential for this colossal market to boom even more.” 

For the time being, Chinese consumers are enjoying a renewed taste of freedom and some of their saved-up cash could be spent on experiential luxury, Siboni said.

“Currently there’s a phenomenon of revenge pleasure in China, which includes travelling and treating oneself,” Siboni said. He warned that travel “in faraway places could compete with buying a designer handbag”, once the backlog of passport renewal requests is cleared.

But investors have still been snapping up luxury stocks across the board as China reopens. Moncler, Ermenegildo Zegna, Kering, Brunello Cucinelli, Tod’s, Burberry, Prada, and Cartier-owner Richemont are all up by double-digit percentages so far this year.

In Europe, “luxury is seen as the highest quality sector by investors, in the same way technology is seen as the best growth sector in the US”, said Pusz. “You can’t replicate it, it has high barriers to entry. To succeed, you need to have been around for more than 100 years to leverage that heritage.” BLOOMBERG