In the world of luxury goods, the recent woes of LVMH, Kering, Hermès, and Zegna raise pressing questions about the future direction of the sector. Following LVMH’s disappointing sales figures, analysts and investors alike are questioning just how far this downturn will extend. The situation becomes especially alarming given LVMH’s status as the leading indicator for the luxury market, encompassing approximately 75 top-tier brands.
Last Wednesday, LVMH’s shares fell by 6% after reporting a 5% decline in fashion sales, significantly below market expectations. Their figures indicate alarming trends, particularly with a noted 16% drop in sales across Asia, excluding Japan. This downturn is largely attributed to a broader economic struggle in China, where the real estate sector — accounting for a staggering 70% of household wealth — is still recovering from the impacts of COVID-19. A cautious consumer sentiment prevails, as affluent Chinese consumers refrain from splurging on luxury items, holding tightly to their savings instead.
These issues are not isolated to LVMH. Kering, the owner of renowned brands such as Gucci and Saint Laurent, experienced an initial decline following LVMH’s report. Shares are rebounding somewhat, which is likely a response to low expectations due to Gucci’s 20% slump in sales during the first half of the year — a staggering 40% drop in market capitalization year-on-year suggests a brand struggling to navigate turbulent waters effectively.
The ever-important question of consumer behavior highlights a two-tiered market. While high-end purchases have dwindled, there are still signs of vitality in the luxury sector. Analysts at UBS predict Kering’s group sales will be down 15% in the upcoming report. However, the initial collections from new designer Sabato De Sarno have experienced impressive uptake among high-end buyers. Products like the monogram-embossed $8,500 leather jackets have already sold out.
Nonetheless, the broader consumer base that occasionally indulges in luxury merchandise appears to be distancing themselves from these hefty price tags. A recent runway showing by Gucci displayed a nod to Italian aesthetics but also featured pieces like a grey office tracksuit that failed to ignite excitement. Projections indicate a possible 24% sales drop for the quarter overall — a daunting forecast.
Kering’s Saint Laurent unit and other luxury entities, including McQueen and Balenciaga, are also projected to see losses of 14% and 5%, respectively. The anticipated 30% drop in profits seems increasingly ambitious considering the overarching trend of significant downturns in the luxury sector.
In contrast, some brands appear to weather the storm more robustly. Bottega Veneta, for example, blocked out lesser wholesale exposure and is projected to experience a 3% rise in sales, indicating a successful pivot during challenging times. Zegna, the Italian menswear giant, reports stable high-end ready-to-wear sales even as the overall luxury growth stagnates for most brands. However, their Thom Browne subsidiary is facing challenges, with a reported 20% decrease in sales during the first half of the year.
Looking ahead, attention turns to Hermès, a bastion of luxury that has remained strong. Anticipated to report on Friday, many expect Hermès to reveal 12% organic growth, buoyed by the relentless demand for its signature Birkin and Kelly bags. Nevertheless, even the French luxury powerhouse is encountering pressures. The brand’s preference for rewarding heavy buyers from multiple product lines has begun to attract scrutiny, especially with an increasing number of customers voicing their dissatisfaction amid declining luxury enthusiasm across major economies. Additionally, an antitrust lawsuit in the U.S. could hint at shifting consumer perceptions.
As luxury brands navigate these turbulent waters, they face critical decisions. Will they adapt to meet a changing consumer landscape, or will rigid adherence to past practices result in deeper declines? With high expectations for insight from Kering, Hermès, and Zegna in the coming weeks, all eyes remain on the industry’s giants to gauge how well they can weather this storm.
