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The luxury industry is going through a slowdown that has yet to let up, confirmed by recent third-quarter earnings.
A number of factors are at play. Consumer confidence in China “is back in line with the all-time low reached during Covid”, LVMH chief financial officer Jean-Jacques Guiony told analysts during the conglomerate’s earnings call on 15 October. Raised prices, a wait-and-see attitude stateside linked to the upcoming election and a stronger yen in Japan, are also contributing to a deceleration in the market.
It’s not all doom and gloom, however — Q3 was a mixed bag. As the ultra-rich remained resilient, brands at the top of the luxury pyramid — namely Hermès and Brunello Cucinelli — witnessed positive growth, while pretty much everyone else posted negative (so far). Kering sales decreased 16 per cent, with Bottega Veneta being “the bright spot”, according to CFO Armelle Poulou, noting a 5 per cent increase for the brand. While LVMH doesn’t break down sales of individual houses, Louis Vuitton performed “a little bit above the [division] average [of -5 per cent]”, according to Guiony, and Loro Piana, Loewe and Rimowa “confirmed their solid momentum”, per the press release. Moncler Group revenues were down 3 per cent, with the Moncler brand also down 3 per cent and Stone Island down 4 per cent.
Prada and Richemont, which are to report their quarterly earnings on 30 October and 8 November, respectively, are expected to lift the spirits. Prada Group is expected to grow 15.4 per cent in the third quarter, with the Prada brand expected to hit 3.5 per cent growth, and Miu Miu continuing to defy the odds with 82 per cent growth, according to estimates from Morgan Stanley analyst Édouard Aubin. Richemont, meanwhile, is expected to grow 2.3 per cent with its jewellery maisons, including Cartier and Van Cleef Arpels, the latter of which is up 4 per cent, per Morgan Stanley estimates.
What happens from here? “It should improve in 2025. I think the second half of 2024 is likely the worst that is to come,” Bernstein luxury analyst Luca Solca says, citing the fact that in the US, the Federal Reserve has started to cut rates and that the Chinese are “seriously” intervening to support their economy. LVMH’s fashion and leather goods division, for one, is expected to grow in the low to mid-single digits in the first half of 2025, according to Solca, after falling 5 per cent in the third quarter, and following continued negative growth in the fourth quarter, per analyst expectations.
Erwan Rambourg, HSBC global head of consumer and retail research, agrees: “How long does this cycle last in China? We’re hoping [China’s] stimulus [plan to boost its economy] puts a floor, and at some stage, you start to see growth again with the Chinese cluster. We’re very optimistic about the American cluster.” He says “decent growth” for the industry could return towards the end of next year.
Here are the key takeaways from the third quarter’s luxury earnings so far.
A ‘greedflation’ backlash
HSBC wrote in its note about “greedflation”, or “the idea that many brands went too high, too quickly in terms of price points”, explains Rambourg. “Seemingly, the value proposition is somewhat broken. You need to make a lot of effort to recreate stepping stones, more reasonable price points to reconnect with an alienated aspirational consumer.”
LVMH’s Guiony dismissed any causal link between the current global luxury slowdown and the price increases implemented over the years. “There are not that many products that we sell today that were active in 2019. We have changed a lot of the product range. So price comparison is not that easy. And when it comes to increasing prices, actually it’s more a mix impact than a price impact. Secondly, all the players have done the same. Do you really think that if we had not increased prices the way we’ve done, we would be faring double digits today? I don’t think so [...] So we are not necessarily having the view that we should change strategies [or] the offer drastically, to address the current situation,” he told investors.
Don’t expect to see prices of existing products coming down. “Lowering prices is a ‘no-no’, because you will annoy customers who bought at the higher price. So the idea is to invest to justify the new price by feeding brand desirability,” Rambourg says. Instead, we may see luxury brands rethink their pricing architecture and offer new products at a lower price point, he suggests. “Vuitton was probably navigating well and the reason is they have a very broad portfolio. In tough times, you trade down from leather to canvas so they cater to all clients.”
A post-election acceleration in the US
Despite a strong economy, luxury goods sales are overall unimpressive. LVMH sales were flat in the US in the third quarter, Kering retail sales were down 15 per cent in the region, Hermès sales were up 13.4 per cent, and Moncler brand sales were down 6 per cent in the Americas. But with the Federal Reserve cutting interest rates, the election soon behind us and the holiday season fast approaching, there’s cause for enthusiasm.
“Right now, equity markets are at an all-time high in the US and luxury demand is OK, but not really accelerating,” Rambourg says. “That’s probably linked to a bit of a wait-and-see attitude. The strength of the American consumer is to write the next chapter. Possibly the day after the election, people move on and start to spend again ahead of the all-important holiday season. So we do believe in a sequential acceleration of growth in the US linked to the fact that the event will be behind you and will see uncertainties being removed.”
Deceleration in Japan, except for Hermès
Japan was luxury’s silver lining earlier this year as Chinese customers flew en masse to take advantage of the weak yen. As the currency rebounded this summer, companies saw a strong deceleration.
LVMH and Kering retail sales were up 20 per cent and 3 per cent, respectively, in the third quarter, down from 57 per cent and 27 per cent in the second quarter. Hermès instead accelerated, posting 22.8 per cent growth in Japan in Q3, up from 19.5 per cent in Q2. This performance speaks to the brand’s product exclusivity strategy. “Hermès is a lot more tied into local demand in every single market than others. If you want a Kelly or a Birkin, you have to be on the waiting lists of your country, so Hermès is less driven by tourism flows,” Rambourg explains.
He cited daigou, or the grey market, among reasons for the slowdown. “We don’t know how to measure, but some of the weaker brands were likely doing well in Japan because you had daigou buying to resell in China and take advantage of price arbitrage with the weak yen. During the summer, the yen rebounded so the daigou business probably dried up.”
The Gucci conundrum
Sales at Kering’s largest house plunged 25 per cent in Q3, as it struggles to navigate a turnaround in a tough economic climate. “There have been a lot of mistakes and a lot of management changes and a lot of cooks in the kitchen, if I may say, at Gucci, so you have to be incredibly patient,” says Rambourg. Kering has recently appointed chief executive Stefano Cantino, indicating that the group’s refreshed exec team is “quite complete”; it will be fully complete when a new communications executive joins, before the end of the year, according to Poulou.
The first products designed by Gucci creative director Sabato De Sarno rolled out to stores in the first half of the year. While they’re yet to reverse the maison’s downward trend, Rambourg notes that the company “seems to be happy with the direction of design”.
Poulou noted that, “ready-to-wear, supported by an injection of newness, outperformed as a category.”
On average, newness represented about 35 per cent of the house’s revenue, according to the executive. Gucci launched three new handbag lines in September: Emblem, which is “very functional” and priced at around €2,000; Blondie, which is “positioned a bit higher and has been pushed by communication [and the ad campaign featuring Debbie Harry]”; and Gucci B, which is “an oversized bag that is more of a fashion statement”.
The new bags are “resonating very well” with customers through “a much higher perception in quality, in terms of both material and craftsmanship”, said Poulou.
Despite all the effort, Solca predicts a continued decline for Gucci in the first half of 2025.
Rambourg says Gucci underinvested for three years compared to its competitors. “They’re now stepping up, but you don’t fix desirability and distribution issues quickly. They still have too many outlets and likely they still have too many stores full stop, including full-price stores. So, there are still a lot of things that need to happen at Gucci to be hopeful that they stop bleeding market share.”
An L-shaped recovery
Don’t expect a boomerang return to growth. Rambourg says that while there was hope for a V-shaped recovery, an L shape is more likely: “You’re going down and down, you find a level and then you go sideways.”
“Chinese consumer confidence is broken and it takes a while to repair,” he continues. “Certainly the stimulus package can help start to repair. I think it’s reasonable to think about an L for the time being; it doesn’t get better from here, but hopefully it doesn’t get worse. The good thing about the L is, if you want to be bullish, the letter that comes after the L is a U, except that’s probably not going to happen anytime soon.”
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