Editor’s Note
This analysis highlights a significant shift in the luxury sector’s momentum, as recent financial reports indicate a cooling period after a long boom. The data suggests a broader market recalibration is underway.
For the autumn/winter 2024 season, the trend is no longer shimmering green but bright red for the growth curves of the sector’s major players. After ten years of strong growth, they are feeling the blow.
The results published for the third quarter reflect this. In their latest study, Bank of America analysts note that the luxury goods sector recorded a 3% decline in revenue in the third quarter, one of the worst performances outside the Covid period.
The average annual growth rate over five years has thus fallen to 8.1%, below the historical level of 9%. For the 75 brands of LVMH, the euphoria is over. Revenue came in at €19 billion in the third quarter, down 4.4% as reported and 3% on a comparable basis compared to the same period last year.
The first victim was the fashion and leather goods activity, the group’s pillar, which fell by 5%. Wines and spirits also suffered, with a 7% drop, and watches and jewelry declined by 4%.
Only perfumes and cosmetics seem to be in good standing with a 3% increase, as did selective retailing (+2%).
On the Kering side, it’s a cold shower. The revenue of the Pinault family company is down 16%, to €3.8 billion.
The first victim of this cold snap, Gucci, the group’s main contributor, fell by 25%. Yves Saint Laurent (-12%) and other brands (-14%) also declined. Only the leather goods maker Bottega Veneta progressed (+5%).
As for the Swiss Richemont (Cartier, Van Cleef & Arpels…), it reported quarterly sales of €2.2 billion, below analysts’ forecasts of €2.45 billion, while profits saw a notable decline of 17%.
In this ocean of bad news, Hermès stands as an exception, with quarterly revenue up 10.1%, to €3.7 billion.
Inevitably, stock prices are feeling the impact. LVMH shares have fallen 19% since the start of the year, Kering has lost 45%, and Richemont has held up better with a 4% gain. Hermès, for its part, has risen by more than 7%.
For all, the economic crisis, the slowdown in China, and geopolitical tensions have brought them back down to earth.
According to Altagamma, the always highly anticipated report by the group of Italian luxury brands, the global luxury market will reach €363 billion in 2024, down 2% from the previous year.
This is far from the double-digit growth recorded in the post-Covid “crazy years.” In concrete terms, 50 million consumers have started to shun luxury.
According to Berenberg analysts, in 2024, China, which accounts for 22% of the sector’s revenue and is expected to generate 60% of its growth by 2030, is showing signs of a structural slowdown linked to demographics, household debt, and a change in the purchasing behavior of younger generations.
LVMH’s sales there are down 16%. Again, only Hermès maintains its positions, with growth of 0.6%. It is worth noting that, at the same time, the market is recovering very strongly in Japan (+20% for LVMH), benefiting from a very favorable yen.
Europe is stabilizing, supported by the return of tourism after the pandemic, especially in major cities and southern beach resorts, while North America remains an essential market for luxury (+3.5%).
To cope with the decline in consumption, brands have consequently significantly revised their prices upwards.
As a result, the sector’s average gross margin is stable, around 70%, but the operating margin remains between 20% and 25%, showing that price increases are financing investments (marketing, distribution).
Worldwide, the wealthiest consumers remain loyal to major brands, but the less affluent are reducing their spending in the face of economic pressures, while demand for more experiences intensifies, forcing brands to reinvent themselves by offering more novelties to attract consumers and stimulate demand.
Consequently, brands are investing in strategies focused on exclusivity and control of value chains to maintain their positioning.