Is luxury in a slump?
High fashion market analysis
Tags
Luxury market, Industry insight, Gen Z
Date
October 15, 2024
Author
Sophie J. Barnes
2024 has seen a continuation of last year’s precarious state: over the course of the summer, the luxury market lost US$200 billion in value, with LVMH taking the biggest hit (Forbes), and a number of luxury labels falling like dominoes. The catalysts are clear: geopolitical tensions, inflation, a cost-of-living crisis, a declining Asian market and the lingering effects of the Covid-19 pandemic.
source: [A target='_blank' link='https://www.thestreet.com/retail/decline-in-luxury-spending-has-hit-a-major-brand-where-it-hurts']The Street[/A]
We’ve seen a number of brands go under this year, including the likes of high-end label Dion Lee, retailer Esprit, beloved British label The Vampire’s Wife, Swedish textile recycling company Renewcell, high-end apparel chain Ted Baker, Parisian luxury boutique chain Anne Fontaine, luxury retailer McMullen, and, notably, online platform Matches Fashion. But it’s not all bad news: some frontrunners have managed to escape the icy grip of macroeconomic headwinds and come out on top despite it all.
What’s happening?
The luxury market was already struggling pre-pandemic, so the post-Covid e-commerce bubble burst certainly hasn’t done anyone any favours. The luxury fashion market has struggled to keep up with the changing dynamics of consumer preferences – as interest in online shopping declines and an adaptation to business models that contradict traditional luxury practices prove increasingly popular. The closure of MATCHES in late June has resulted in a chain reaction, affecting both emerging and established brands.
Burberry is owed more than £500,000, which hits particularly hard given that the brand has had to issue its second profit warning in a year, recently replaced its CEO and saw shares fall to 2010 levels (Guardian). Meanwhile, MATCHES owes Anya Hindmarch more than £200,000, and Paul Smith and Samantha Cameron’s Cefinn each more than £100,000 (Guardian). What’s more, after a decade in business, beloved British label The Vampire’s Wife has had to close shop in large part due to MATCHES being one of their biggest stockists.
Even major conglomerates like LVMH and Kering are feeling the pinch. French luxury group Kering – owner of labels including Gucci, Balenciaga, Yves Saint Laurent and Alexander McQueen – fell to a seven-year low after announcing that operating income would decline 30% in the second half of the year, following a 42% drop in the first half (Guardian).
According to Forbes, LVMH fell short of analyst estimates in the first half of 2024 and shares dropped 7% year-to-date with a notable 21% slump since March. Last September, the French conglomerate was toppled as Europe’s most valuable company when GLP-1 drug Ozempic and Wegovy producer Novo Nordisk overtook the spot with a $424.7 billion market cap (Forbes). Accusations of labour rights exploitation and links to Italian sweatshops for LVMH-owned Dior in July, the negative impact of exchange rate fluctuations, declining sales in Asia and the 12% hit to LVMH’s wine and spirits sector all play a role in the conglomerate’s earnings slump.
In Asia, the Chinese market’s slow luxury sales slump has hit luxury brands hard. Last year, Chinese buyers accounted for 16% of all luxury purchases worldwide (Forbes). So it’s no surprise that the stagnation of the country’s economic growth is having widespread global consequences. According to Forbes, China has fallen short of economic growth estimates, slowing to 4.7% GDP growth year-over-year. The country’s economic decline can be attributed to its ageing population, plunging land sales and diminishing exports, which constituted 36% of the nation’s GDP in 2006 but fell to 20% in 2023.
In response to slowing consumer demand, Chinese luxury retailers marked down prices up to as much as 50% in an attempt to tempt Chinese consumers and to grapple with overstocking. It all came to a head last November when China’s Singles Day (the world’s largest shopping festival) resulted in an alarming number of returns and exchanges – leaving luxury labels with a backlog of stock. According to Bloomberg, return rates in China have risen to around 50% – far surpassing the luxury industry average of around 30%.
source: [A target='_blank' link='https://www.elle.com/uk/fashion/a46855514/burberry-autum-winter-2024/']Elle[/A]
Industry outliers
Despite the rather gloomy industry outlook, a few brands have managed to rise above and beyond expectations, with [A target='_blank' link='https://dd.agency/insights/whats-miu-miu-doing-better-than-everyone-else']Miu Miu[/A] being the most obvious outlier with 58% growth last year and 90% year-over-year growth in the first quarter, driving parent Prada Group’s sales up 17% (Forbes). The brand has appeared on young consumers' radars with buzzy pieces, of-the-moment celebrity collaborations, a total product and styling revamp, hyper-localised campaigns, captivating storytelling and, most recently, an appeal to all generations – resulting in a broadened consumer base.
In other positive news, Hermès has been rocking it with a 13% increase in sales (Reuters). Last year the brand’s sales were up 21 percent at €13.4 billion (Vogue Business). It’s possible that the brand’s popularity is linked to their brand ethos as a ‘house of artisans and human values’, which resonates particularly well with [A target='_blank' link='https://dd.agency/insights/keeping-up-with-gen-z']Gen Z[/A] – a generation inclined to purchase from brands that are value-oriented.
Brunello Cucinelli and Moncler are also ahead of the crowd. In the first quarter of this year Bruno Cucinelli sales rose 14.1 percent year-on-year to €620.7 million, with operating income growing an impressive 19.3 percent to €104.6 million (Vogue Business). Meanwhile, Moncler Group said revenues climbed 8 percent in the first half of 2024, to €1.23 billion versus €1.14 billion in the first half of 2023 (Vogue Business). Moncler brand revenues were up 11 per cent to €1.04 billion, driven by direct-to-consumer sales across regions (Vogue Business).
