Instagram could be a crucial stock-picking tool when investing in luxury firms

A model on the runway for Louis Vuitton at Paris Fashion Week, October 2018
Victor Virgile/Gamma-Rapho | Getty Images

Instagram likes are now a serious metric for investors in luxury brands including Burberry, Kering-owned Gucci and Saint Laurent and LVMH labels including Dior and Louis Vuitton.

Posts on the millennial-friendly platform are likely to lead to sales, according to a UBS report on European luxury published Friday.

"Given the rising importance of social media for luxury brands — especially in the context of millennials growth — we believe Instagram data can no longer be ignored as a data point for luxury investors, to help them pick the winning brands," the report's authors said.

The number of Instagram followers a luxury brand has is likely to correlate to sales. "We note a clear linear relation between the number of followers on a given social channel and the brand sales at retail," UBS notes. Even if fans can't afford to buy a designer item immediately, their interest will likely mean they purchase "sooner or later."

Gucci, for example, spent around a third of its advertising and promotions budget on digital marketing in 2016, and UBS estimates this will grow to around 55 percent in 2018. This might include advertising on Instagram, as well as fees paid to celebrity endorsers to share sponsored posts.

UBS also analyzed Gucci's quarterly average likes per Instagram post between the start of 2016 and the second quarter of 2018 and found a 76 percent correlation between the increase in likes and sales growth.

Facebook-owned Instagram has made it easier for people to purchase from the platform, letting people shop directly from Stories in June and expanding the function to 46 countries on September 17.

UBS also found a strong link between Google search and organic growth in Italy, Gucci's home country, at 94 percent, when it looked at the brand's quarterly organic sales growth and the year-on-year growth in its three-month average Google searches from 2012 to the second quarter of 2018. This suggests that people want "instant gratification," according to UBS. For LVMH's brands, the correlation is 73 percent over the same period.

The "customer journey," from someone browsing social channels to making a purchase, an activity that marketers spend a lot of time tracking, could also be shorter than expected for luxury brands.

As well as looking at historical data, UBS analyzed 25 European luxury brands' Instagram accounts over September, known as "fashion month," when designers present their collections on New York, London, Milan and Paris runways for the following spring/summer season, noting that it does not include data for the full Paris fashion week, which ran from September 25 to October 2.

Gucci had 14.5 million likes in September, with an average of 164,200 likes per post, followed by Dior with 9.3 million likes and 63,000 likes per post.

Rolex, meanwhile, had fewer Instagram likes in September (1.1 million), but came second in the likes-per-post measure, with 112,800. Versace got 6.4 million likes, with an average of 626,000 likes per post.

Burberry, closely-watched because of its debut collection from new creative head Riccardo Tisci, managed an average of 40,500 likes per Instagram post in September, with 2.5 million likes overall.

For some brands, millennials account for a high proportion of sales. UBS estimates that 65 percent of Saint Laurent's sales come from millennials, while Gucci and Prada have around 50 percent. Around a third of Louis Vuitton's sales come from millennials, while about 10 to 15 percent of Tod's sales are from this generation.

UBS looked at total monthly likes, the number of posts, the average likes per post, the number of followers, month-on-month growth in followers and the engagement rate (average number of likes per post divided by the number of followers) for its European Luxury report.