It was announced today that Prada, the Italian Luxury goods maker is seeking to file an IPO. Is this a sign of the end of easy credit and the materialistic "living beyond our means" post modern Gilded Age.
From the press release:
Luxury goods companies have seen a surge in their earnings multiples during the extended economic boom, with unprecedented demand for high-end, high-margin goods, but capital markets are trickier now that the credit crunch and falling house prices are beginning to dent consumer morale.
Still, fashion executives insist undinted demand from newly middle class shoppers in China, Russia and India will more than counter any sag in U.S or European sales.
Well, if FASHION executives insist, then we don't have to worry. They also insist that I would look best in tight leather pants and puffy shirts, so they must be very good at predicting the geopolitical and global economic ramifications of an unprecedented credit event. Phewww.
Anyways, I have been looking for symbolic "signs" that the tides are starting to shift. One was during the middle of the summer, as the subprime crisis emerged, one of the most popular rap songs played at all the clubs was "The Way I Are" by Timbaland. If you haven't heard it some lyrics are below:
I ain’t got no money
I ain’t got no car to take you on a date
I can’t even buy you flowers
But together we be the perfect soulmates
Talk to me girl
I ain't got no VISA
I ain’t got no Red American Express
We can’t go nowhere exotic
It don’t matter ‘cause I’m the one that loves you best
Talk to me girl
Oh, baby, it’s alright now, you ain’t gotta flaunt for me
If we go touch, you can still touch my love, it’s free
We can work without the perks just you and me
Thug it out til we get it right
For years during the "Bling-Bling" era, where rappers were talking about Prada, Fendi, Gucci, as well as fancy cars, and nice jewelery, and people were buying. Now, it seems all of a sudden a song that is the complete antithesis of that came out and was popular by the same people. Its interesting because people listen to music that makes them feel good usually. When they have tons of credit and are able to "floss" they want to hear that stuff. When they are broke, they want to hear, "it's alright now, you ain't gotta flaunt for me". I think this is one of the more interesting manifestations of this whole things we have seen.
Anyways, now that luxury goods makers seem to be falling out of favor with those who can not afford their goods, whats better than to buy a share of their stock for fraction of the price? Luxury goods by definition can not sustain growth without massive inflation. They will always price out of range from the majority of people so they remain "luxury" in nature. They benefit enormously when inflation runs rampant since their demographic usually benefits and will pay more.
There are always those special IPO's in hindsight that market the end of one phase and the beginning of another. One recent example would be Blackstone's IPO ushering in the credit crunch. Could one of the biggest beneficiaries of a global liquidity boom going public, be the sign of a deflationary shift? Maybe, but if it is, I wouldn't want to be the Prada bagholder.
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