Luxury brands have been sounding the alarm about a global downturn in recent months. With second quarter results due out this week from three of the sector’s biggest names, we’re about to learn the extent of the damage.
Analysts expect LVMH to report 3 percent growth after market Monday, on par with the previous quarter but well below the high standard set in recent years. Meanwhile, Gucci-owner Kering is expected to report sales down 9 percent on Tuesday, Reuters reports.
The biggest and most intractable problem is China. Once responsible for the bulk of luxury brands’ growth, consumers in the world’s second-biggest economy seem to have abruptly reined back spending on glitzy items. Retail sales grew 2 percent in June, the slowest pace since December 2022, despite government efforts to boost consumer confidence. Reduced spending can partly be chalked up to a slowing economy – GDP growth also underwhelmed. But the downturn is being compounded by mounting government pressure on China’s wealthy not to flaunt their riches, recalling a slowdown in the mid-2010s linked to an anti-corruption push. The impact was already seen in Richemont’s quarterly report last week indicating sales of its pricey watches plummeted 27 percent in the country.
Elsewhere, growth is anaemic as consumer priorities shift. Success depends most on the overall health of the brand. Hot competitors such as LVMH’s Loewe or Prada’s Miu Miu continue to grow, while struggling labels like Burberry and Gucci reported steep sales drops in the US and Europe last quarter. Expect this dynamic to hold; while both Burberry and Kering have shaken up their executive ranks and strategies, neither company has changed course yet.
Hermès and a clutch of other ultra-high-end brands have yet to suffer from the slowdown. There are cracks forming even here, however. Investors were dismayed earlier this month when Brunello Cucinelli, amid otherwise strong results, failed to lift its outlook for the remainder of the year. That follows Chanel, which in May reported growing sales but warned of more volatile times ahead. Hermès’ earnings usually outperform in times of crisis, as its persistently sold-out Birkin and Kelly bags are the last expense many big spenders want to cut. If the company falls short of expectations, watch out.
In happier news, the Olympic Games open in Paris on Friday. Marketing teams at fashion brands high and low have been preparing for this moment for months, if not years. LVMH brands are expected to be omnipresent, particularly Louis Vuitton, which has found new ways to ensure its signifiers are seen by hundreds of millions of viewers at home (to cite one example, medals will be carried to the podium on LV-checkered trays). Luxury labels have recently embraced global sports as a way to burnish their status as “cultural brands.” For actual sportswear companies, the Olympics stakes are higher; Nike needs to show it still leads the way when it comes to elite performance, while smaller brands are looking to stamp their logos on their category’s biggest stage.
The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to [email protected].
