How international travel will make your investment fund more elegant

Tim Richardson

Pengana Capital Group

Luxury hasn’t been democratised; it’s been globalised.
– François-Henri Pinault, Chairman and CEO, Kering

Demand for luxury goods is growing and global travel is bouncing back. This follows the easing of COVID restrictions and the expansion of travel industry capacity. These trends reinforce each other as indulgence shopping becomes part of the travel experience. The high sensitivity of luxury goods sales to the growth in international travel can be a great opportunity for investors in global equity markets.

What’s happening now we are travelling again?

Intuitively it might be assumed that as spending on travel rebounds, it will negatively impact luxury goods sales. However, rather than competing for consumers’ share-of-wallet, luxury purchases are positively correlated to international travel. This is now booming again, especially in Europe as free-spending Asian and North American visitors return; for many, luxury goods shopping is part of the travel experience.

Moreover, cashed-up travellers are disproportionately young. This demographic is less likely to have a mortgage and be struggling with rising monthly payments. Instead, they remain confident about their incomes under continuing full employment.

Luxury goods may be considered materialistic purchases, but when associated with travel experiences, they can help build very positive memories. The Monet print may now be considered a rather passé souvenir to bring home from Paris. However, the latest Bottega Veneta bag acquired in Les Galeries Lafayette Haussmann may attract more envious glances and likes, starting more conversations back home in Manhattan or Singapore.

The luxury sector also stands to benefit from the resurgence of business travel. This is because work trips often give rise to ‘guilt purchases’ when away from loved ones. These sales are often made in a hurry to alleviate the pain of separation, giving rise to high prices and wide margins.

Tax-free shopping for overseas visitors provides further encouragement for travellers to splash out.

Shopping sustainably on the hop

Brands are closely associated with consumers’ need for identity in a more transient, less physically connected world. Moreover, luxury purchases are increasingly now being made by members of Generation Z.

It enjoys travelling but is much more socially and environmentally aware than earlier demographics and where possible aligns its spending with brands that share its values.

This means brands must demonstrate robust environmental, social and governance (ESG) credentials. Gen Z expects brands to demonstrate they are managing their workers and suppliers well. Brands must consider the impact of their activities on the environment and society more widely. The conditions facing a brand’s overseas workforce resonates especially strongly with Gen Z travellers.

Many luxury items are produced by artisans in high-wage European countries; Gucci and Yves Saint Laurent products are 100% made in Italy, while Hermes manufactures in France. This reinforces sales to visitors in those countries. It also avoids supply chain risks faced by fast fashion houses that draw on long supply chains employing cheap labour overseas.

Gucci collaborates with the second-hand platform The RealReal to demonstrate its commitment to supporting the circular economy.

What does this mean for investors?

The return to global travel is a tremendous opportunity rather than a threat to luxury goods brands.

While an online presence can build brand resonance, travellers usually transact in person – often spontaneously. Luxury brands need a strong web platform, established physical stores in major travel destinations and to be able to demonstrate how they impact the environment and society.

Established brands with extensive resources are best placed in the luxury goods sector to compound earnings and drive long-term returns within a diversified portfolio of quality growth companies. 


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Tim Richardson
Investment Specialist
Pengana Capital Group
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