This week, luxury fashion’s biggest players reported falling revenues for a second consecutive quarter, underscoring just how far demand for luxury mega-brands has fallen from post-pandemic highs.
Sales at sector leader LVMH were down 1 percent, while Gucci owner Kering’s revenues dropped 11 percent. Last week, Richemont reported sales down 1 percent. Burberry plunged 22 percent.
There were a few bright spots: Brunello Cucinelli, Hermès and Moncler reported double-digit growth in the last quarter. And it’s clear that Gucci and Burberry, struggling to relaunch under new leadership and aesthetic directions, are saddled with specific challenges. But there is little doubt the industry is feeling the heat.
Macroeconomic gloom is part of the problem.
Around the world, sluggish economies have curbed new wealth creation. In Asia excluding Japan, where LVMH sales dropped 14 percent in the last quarter, economic malaise including collapsing property values and youth unemployment has weighed heavily on consumer confidence in the key China market.
Meanwhile, in the US, aspirational consumers have pulled back on luxury shopping amid slower economic growth. According to data released Thursday, gross domestic product grew 2.8 percent in the second quarter, up on the previous quarter, but down from the unexpectedly strong momentum seen at the end of last year. Economists say the US economy remains resilient but lingering inflation and fears of political instability are putting pressure on the consumer “feel good” factor that’s vital to luxury sales.
Shifting consumer preferences, away from physical goods to experiences like travel, are also part of the equation.
But the slowdown in demand for luxury fashion may be self-inflicted, too.
Big luxury brands trade on a carefully constructed marketing image that is powered by a heady collision of heritage — soaked in old European social hierarchies — and modern celebrity culture. Key to the storytelling are artfully made claims to craftsmanship, creativity and exclusivity. But this image is fraying.
In recent years, brands have hiked prices far faster than inflation as they target wealthy clients to protect profit margins. This has not only alienated Gen-Z and middle-class customers, who are key to growth, but put pressure on luxury’s core value proposition as shoppers wonder if luxury brands are really worth it.
The sector’s price hikes haven’t come with corresponding product innovation. On the contrary, the luxury sector is currently suffering from a lack of creativity from the top, with several major fashion houses creatively rudderless or transitioning to creative directors who are less inclined to bold aesthetic bets.
In stores, brands have sought to justify soaring prices with ultra-classic styles that customers know they’ll wear a lot. But this has contributed to a pervasive sense of sameness.
At the same time, reports of diminished quality are circulating online, undermining craftsmanship claims. An Italian probe into the use of sweatshop labour has hit social media, alongside personalities like Tanner Leatherstein, who chops up luxury bags to show how much he thinks they’re actually worth.
Then, there’s the growing ubiquity of luxury brands, which undermines their sense of specialness, though as Bernstein analyst Luca Solca argues, calculating ubiquity is complicated and ubiquity risk, as measured by key styles appearing too often on the street, has grown far slower than sales volumes.
The industry needs to address rising prices. Can it also tune the other side of the value equation and re-energise belief in the creativity, craftsmanship and exclusivity factors that are so critical to desirability?
September may bring further clarity with star designer Alessandro Michele’s first show for Valentino — as well as fresh revelations from the Italian investigators looking into working conditions in luxury’s supply chain.
What do you think? What’s behind the luxury slowdown? And are luxury brands worth it?
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
The Olympics will commence Friday evening with an extravagant opening ceremony in the heart of Paris. The sporting event, which will run until Aug. 11, has attracted unprecedented interest from the fashion industry. Traditional advertisers like Nike and Adidas find themselves competing in an increasingly congested marketing environment.
LVMH missed analyst target for revenue in its second quarter. The world’s biggest luxury group saw sales rise 1 percent year-on-year to €20.98 billion ($22.76 billion) in its latest quarter, undershooting the €21.6 billion expected by analysts. Shares were on track for their biggest one-day drop since October 2023.
Kering weakened as Gucci sales fall 20 percent. The group’s first-half operating profit fell by 42 percent year-on-year. Profits are likely to fall by 30 percent in the second half of the year, the company warned, while offering few promises on when its brands would return to growth.
Hermès sales rose 13 percent on continued appetite for high-end luxury. Sales at the French luxury group in its second quarter grew to €3.7 billion ($4.02 billion), a 13 percent organic sales rise. Its growth signals the continued appetite from wealthy shoppers for luxury handbags, even as less affluent consumers pull back.
LVMH’s L Catterton buys stake in outlet landlord Value Retail in £1.5 million deal. The transaction includes interests in nine luxury retail properties outside major European cities including the Bicester shopping village, about 60 miles northwest of London. It will generate cash proceeds of £600 million for developer Hammerson Plc, the seller of the portfolio.
Moncler’s operating profit beat expectations. The Milan-based group, known for its puffer jackets, said its half-year consolidated revenues totalled 1.23 billion euros ($1.34 billion). Sales rose 5 percent in the second quarter, driven by strong growth in Japan and positive performance on the Chinese mainland.
Zegna posts flat organic revenue. Second-quarter sales fell 0.4 percent year-on-year. Revenue growth at its Zegna brand, which accounts for most of the group’s sales, were driven by ongoing robust growth in the US and EMEA region, but fell by a single digit percentage in the Greater China region.
LVMH pledges more vertical integration in response to the Dior manufacturing scandal. The luxury giant said it was unaware of the issues in its supply chain, despite ongoing efforts to increase auditing and monitoring of external manufacturers. “We accept full responsibility for what happened,” CFO Guiony told analysts in an earnings call.
LVMH holds talks on sponsoring Formula 1. Swiss watch brand owned by French luxury conglomerate LVMH Tag Heuer is in talks to take over as the official timekeeping sponsor of Formula 1 motorsports racing, one of the most expensive marketing agreements in sport. Rolex has served as the official timekeeping sponsor of Formula 1 since 2013.
On arrives at the Olympics revelling in the role of upstart. The company has more than tripled the number of athletes wearing its sneakers at the Paris 2024 Olympics since the Tokyo Olympics in 2021, with 66 athletes using the company’s gear across 18 sports including track and field, triathlon, marathon and tennis.
Saudi Wealth Fund offers to boost stake in Selfridges to 50 percent. The country’s Public Investment Fund already owns a 10 percent share in the Selfridges properties and has offered to buy the remaining 40 percent stake for a cash price of £1 million ($1.3 million) from Signa’s flagship property unit.
LuisaViaRoma opens an outpost in New York’s NoHo neighbourhood. The 16,500-square-foot store is the retailer’s first attempt at international expansion since it opened its doors in Florence 95 years ago. It’s also a bid to recapture the retail magic of once-iconic, now-shuttered New York stores like Barneys or Opening Ceremony.
Off-White and Toteme to show at New York Fashion Week. Area will kick off the Spring/Summer 2025 season on Sept. 6. Off-White, which typically shows in Paris, will make its New York debut under creative director Ib Kamara on Sept. 8, while Swedish label Toteme will show on Sept. 10 after having presented in Paris last season.
Paris Fashion Week to include Alessandro Michele’s Valentino Runway debut. Weinsanto will kick off the week on Sept. 23 and Louis Vuitton will round it out on Oct. 1. Chanel will stage its first ready-to-wear show since Virginie Viard’s departure in June and Dries Van Noten is set to show for the first time without its eponymous designer.
THE BUSINESS OF BEAUTY
The Body Shop is expected to emerge from administration. Charles Denton, the former Molton Brown chief executive who leads the consortium that has agreed to buy The Body Shop, said he expects the company to emerge from administration in August. The consortium agreed to buy The Body Shop out of insolvency last week.
Interparfums sales rose 11 percent. The fragrance-maker for brands such as Jimmy Choo, DKNY and Karl Lagerfeld posted second-quarter net sales of $342 million, beating analyst estimates of $339 million. Interparfums’ European operations rose 14 percent, while its US arm grew by 8 percent.
L’Occitane to delist from Hong Kong Stock Exchange. The company is set to exit the public market in August after shareholders voted to approve such a move. Chairman, Reinold Geiger, who owns more than 70 percent of the company’s shares, said the transaction will provide the group with the flexibility to make longer-term business decisions.
PEOPLE
Creative director Peter Hawkings exits Tom Ford. Peter Hawkings, longtime deputy of Tom Ford who took over as the brand’s creative director in 2023, has exited the business. A successor will be announced in the “near future,” according to Tom Ford owner Estée Lauder Companies.
Sergio Rossi taps Paul Andrew as creative director. Andrew previously served as creative director of Salvatore Ferragamo, where he was the first designer to oversee all categories for the family-owned brand. Sergio Rossi is owned by China’s Lanvin Group.
Estée Lauder Companies names Akhil Shrivastava executive vice president and chief financial officer. Shrivastava succeeds Tracey Travis, who is set to retire after holding the position since 2012. Travis will remain at the company in a support role until next year.
Nike hires former Salesforce executive in tech division shakeup. Cheryan Jacob, who has previously worked at Microsoft as well, will lead efforts to modernise technology infrastructure as chief information officer for the world’s largest sportswear company.
MEDIA AND TECHNOLOGY
Essilorluxottica confirms Meta interested in stake. CEO Francesco Milleri said the maker of Ray-Ban and Oakley sunglasses isn’t planning a capital increase dedicated to Meta and the tech giant would buy shares on the market if it wants to become a shareholder. He didn’t elaborate on the size of the stake Meta may buy and on the timing of the purchase.
Compiled by Yola Mzizi.
