AI wealth shift may favor jewelry makers over luxury bag brands

In short: As AI helps create new wealth, investors are debating whether luxury jewelry sellers like Richemont could benefit more than handbag-heavy groups like LVMH.

What's going on

A Financial Times Lex column looks at how money made in AI-related industries might change who buys luxury goods. The key question is whether the gains go mostly to already rich people or spread more widely.

LVMH, the French owner of Louis Vuitton and Christian Dior, reported second-quarter results that suggested it is seeing some benefit from newly wealthier tech customers. Its chief financial officer pointed to wealth creation in the US and South Korea. LVMH’s fashion and leather goods division returned to revenue growth when you strip out currency swings and one-off business changes.

But the column notes that jewelry is currently growing faster. LVMH’s watches and jewelry division rose 11% year on year, while its fashion and leather goods business grew 1%. At Richemont, which owns jewelry brands including Cartier and Van Cleef and Arpels, the main jewelry business grew by almost a quarter in the three months to the end of June, excluding currency effects.

The argument is that jewelry may do better if AI leads to a “K-shaped economy” (like a letter K, where one group gets richer while another falls behind). Extremely expensive gems can soak up spending from a small number of very wealthy buyers. Bernstein analysts cited a Van Cleef & Arpels item priced close to €1 million, while a top Louis Vuitton Capucines bag is listed at about €6,500.

What to watch

If AI-driven wealth spreads to more upper-middle-class shoppers, the column suggests LVMH could do better because it sells more products that a larger group of affluent buyers can reach. Investors will also watch valuations, LVMH has fallen to about 20 times expected earnings, versus roughly 27 times for Richemont.

Source: Financial Times