The fourth quarter of 2024 suggested luxury was poised for a gradual — and very welcome — recovery. But macroeconomic turmoil and persistent weakness in China have stalled the rebound.
Most luxury players reported a deceleration in the first quarter of 2025. The top performing brands like Hermès, Brunello Cucinelli and Bottega Veneta are still in growth, but that growth has slowed. Prada’s sales were flat, though Miu Miu still shined with 60 per cent growth. Gucci’s slump continues, dragging down Kering’s overall performance. LVMH, which missed expectations in Q1, fell somewhere in the middle.
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“ Investors ask me: ‘What do you think of luxury?’ I say, well, there is not one sector. There is a lot of dispersion. It’s brand specific. It’s specific stories,” says Erwan Rambourg, HSBC global head of consumer and retail research. HSBC now anticipates flat growth for the industry sector (in aggregate) in 2025, with a negative sector in the first half followed by a slight positive in the second.
To mitigate the impact, some brands are weighing up cost-cutting initiatives and sharper price architecture. Here are the other takeaways from the earnings calls.
1. US shoppers, brace yourself
After revealing on 2 April that he planned to impose tariffs of 20 per cent on imports from Europe and 31 per cent from Switzerland, President Donald Trump later announced a 90-day pause on most reciprocal tariffs (scheduled to end on 8 July) and said import tariffs for all countries except China would be reduced to 10 per cent. At LVMH’s annual general meeting on 17 April, chairman and CEO Bernard Arnault urged Brussels to strike a trade agreement with the US.
In the meantime, European luxury companies have been quick to pass the 10 per cent tariff on to American consumers. Hermès said during its earnings call that it will increase prices uniformly across its various categories in the US on 1 May, without defining the increase. Brunello Cucinelli also mentioned during its earnings call that the tariffs might cause prices for the winter collection (in stores from July) to rise. Zegna Group COO and CFO Gianluca Tagliabue told investors that the group will take the “necessary actions”, and that it is considering a mid to single-digit increase in pricing in the US for Autumn/Winter 2025.
As such, analysts aren’t worried about the direct impact of tariffs on the companies’ bottom lines. “These price increases provide a case in point: the first level impact of tariffs will be negligible,” Bernstein analyst Luca Solca wrote in a note. “Mega-brands like Louis Vuitton in particular remain highly desirable and command clear pricing power. Given that tariffs are also applied to transfer prices, we expect price increases to fall within the 5 to 7 per cent like-for-like price inflation the industry has seen over the past 50 years.”
What’s more concerning, analysts say, is the knock-on impact of the uncertainty tariffs create globally, which has an impact on the stock market, on currencies and on the macroeconomy. This wealth erosion is set to have a ripple effect on luxury consumption — though it’s too early to quantify the extent of the impact.
LVMH said sales in North America dropped 3 per cent in the first quarter, from being up 3 per cent in Q4 2024. However, the company remains bullish. “In March, except for softer demand in beauty and a continued soft demand in cognac, the rest was holding pretty well and sometimes better than sequentially last year,” LVMH CFO Cécile Cabanis said.
Should brands worry about a slump in consumer confidence? “What it tells us is that there’s a lag between when things happen and when it affects luxury,” says Rambourg. “There’s less of a lag if you’re looking at everyday consumption products. People are a bit more jittery or nervous if they’re more affected by inflationary pressures. But in luxury, my interpretation is: it will happen, the slowdown of the American cluster will happen, it’s just a question of time.” To mitigate the impact, experts say brands should fine-tune their strategies in terms of product assortment and perceived value.
2. A balancing act
With sales decreasing, companies are seeking to protect margins without compromising the future. That’s the mindset of many luxury companies, which are often family led.
“For us, it’s key to continue to invest in our networks behind the brands because we want to make sure that we exit this downturn cycle very strongly and [are] ready when demand bounces back,” said LVMH’s Cabanis. “So it’s all a matter of balance between adjusting to the current context and ensuring that we keep investing in our long term.”
Rambourg says Kering and Burberry, on the other hand, are likely to be cutting — not just containing — costs. Kering sales dropped 14 per cent in Q1, with Gucci down 25 per cent. “Kering is under pressure because a lot of their assets are not doing well. They have Valentino at some stage that they have to bring forward,” says Rambourg. (Kering will need approximately €4 billion to exercise its option to acquire Valentino from Mayhoola starting in 2026, Solca noted.) “The reason they built up beauty is to eventually take back the Gucci licence from Coty. That hasn’t happened and that won’t come for free.”
Deputy CEO Francesca Bellettini talked about the creative transition at Gucci and Balenciaga during the group’s earnings call.
Kering is “working not only to stabilise, but to decrease OPEX [or operating expenses including rent, inventory costs and marketing] for the full year,” its CFO Armelle Poulou said during Kering’s earnings call on 23 April. The group closed 25 directly operated stores in the first quarter, including 10 Gucci stores.
Kering deputy CEO Francesca Bellettini stressed a focus on better allocation and return on investment (ROI) when it comes to marketing and communication. The group still has its eye on the long term. “The areas that we tend to touch last are all the areas that are related to consumer experience, consumer activation and building an immediate return for the brand and at the same time something that is going to be valuable for the future,” she added. For example, Gucci’s exhibition in Shanghai and an event during Salone del Mobile — both celebrating the house’s Bamboo bag — were not cancelled, but were controlled in terms of cost. “Everything else that is not necessary — and everybody has a ‘nice to have’ — is of course carefully monitored and cut.”
Burberry is due to report its preliminary fiscal 2024 results on 14 May. After a 4 per cent decrease last quarter (which beat expectations), HSBC estimates that Burberry’s sales decreased 7 per cent in the quarter ended 30 March. “I think [CEO] Joshua Schulman’s approach to cost-cutting will be a lot more thorough and dramatic than his predecessors’ initiatives and in my coverage at least, it’s the only company that’s not family controlled and they’re facing tough times,” says Rambourg. (Family-owned businesses have less quarterly pressure from shareholders to deliver profitability.) “Last time they published, they said we’re hoping we’ll be breaking even, but we actually might be loss-making this year so they are under pressure to do something about their cost base,” Rambourg says. In November, Schulman presented ‘Burberry Forward’, a detailed plan that includes a reset of its pricing structure and a renewed focus on the core customer.
Across the board, luxury companies “will be squeezing what they can”, says Rambourg, noting that consulting fees and third-party service provider’s fees will come down dramatically to save money. Also say goodbye to blockbuster shows. “[Louis Vuitton Men’s show by] Pharrell Williams on the Pont Neuf bridge, that was the bull market. We’re not in that phase anymore. At Dior, you’re not gonna have one runway show every month. Moving from exuberant shows to more intimate shows is bound to last for a few quarters. You will not stop investing. You’ll just do less, [but] better,” Rambourg adds.
3. Increase conversion
After years of quiet luxury and greedflation (the idea that many brands went too high, too quickly in terms of price points), which alienated aspirational customers, brands are rethinking their price architecture.
To reconnect with customers who can’t afford the expensive ready-to-wear and handbags, it’s about launching more affordable leather goods — like the D-Journey range at Dior, for example — or focusing on categories at more palatable price points, like scarves and beauty. Gucci unveiled during Q1 an initiative celebrating its history in silk craftsmanship, which involved a limited collection of scarves designed by nine artists, a coffee table book The Art of Silk published by Assouline tracing the evolution of its silk scarves since the 1950s, a new campaign photographed by Steven Meisel, and a celebratory dinner in Paris.
“The problem is that the traffic is down,” Kering’s Bellettini said during the company’s earnings call. “The challenge is to offer products without diluting or reducing the ticket to increase conversion. And some of the actions that you have seen at Gucci — for example, The Art of Silk — is done to do that and to make sure that the legitimacy of our brand in certain product categories that can help conversion is very well understood. Other categories like jewellery or small leather goods are of course being looked at to try to improve the conversion.”
Albeit in the pipes for several years and therefore not a reaction to the most recent slowdown, the launch of La Beauté Louis Vuitton (announced in March and slated for release in the autumn) is a means to increase traffic and conversion, Rambourg notes.
4. Creative transitions
Creative transitions were on the agenda for both LVMH and Kering this earnings season. LVMH’s Arnault even used the AGM as a platform to announce that the next Dior Men show in June will be designed by Jonathan Anderson (confirming his appointment as artistic director of the maison’s menswear). The group is also awaiting the debut of Michael Rider at Celine and of Jack McCollough and Lazaro Hernandez at Loewe.
At Kering, all eyes will be on the debut of Demna at Gucci in September and of Louise Trotter at Bottega Veneta, while a new creative director at Balenciaga will be appointed “in due course”, Bellettini said. “ The person we are searching is a high calibre who can build on what has been already very well done at the brand, continue the success and continue to develop it.” Versace tapped Dario Vitale as chief creative officer in March and Spanish group Puig announced the appointment of Duran Lantink as Jean Paul Gaultier’s permanent creative director on 15 April.
Demna is Gucci’s latest artistic director. Find out what that could mean for the future of Gucci.
Creative transitions come with challenges. “Change is great, it grabs the headlines, but when a new creative director arrives, the impact takes 12 to 15 months,” Rambourg says. (Loewe, which has been in the news with the departure of Anderson and the nomination of McCollough and Hernandez both in March, ranked first in the Lyst Index of the hottest brands in the first quarter.)
Fashion executives are seeking to minimise the disruption. Bellettini said: “When are you going to see the first hint of Demna’s creative vision for Gucci? In September, but in terms of products arriving in the stores, we are working all together to bring novelty.” More newness will be introduced, she said, as the brand accelerates how quickly it can get products to market. “Therefore you don’t have to wait until 2026 to see some of those products. But also we are not waiting at Gucci to have Demna or not-Demna products. We’re going to have novelties, progressively arriving at the stores and we keep on working also the revamping of our carryovers.”
When Balenciaga is announced, fashion’s latest round of comings and goings should be more or less complete. “Most of the groups are positioning themselves for a rebound in 2026,” says Rambourg. “[The strategy is to] have everything in place in terms of management, designer, whatever else you need to be ready for when the world will be a bit of a better place, hopefully in 2026.”
