Has the luxury-goods industry turned a corner?

A nascent sales rebound in one of the world’s most important regions for luxury-goods sales will give executives plenty to talk about at Fashion Weeks in London, Milan, New York and Paris.

| 6 min read

Over the next month, the world’s fashionistas and champions of haute couture are gathering for the premier “Fashion Weeks” in four of the world’s wealthiest cities.

Luxury fashion houses will present what they hope will be headline-grabbing catwalk shows that showcase starry A-list front rows as they crank up their public-relations efforts to full “Edina Monsoon”. All four of the annual industry fixtures will be glamorous and excessive affairs.

However, the luxury goods industry is not immune to the ebbs and flows of economic uncertainty – as demonstrated in the second half of last year.

Share-price gains in the major sector players such as LVMH, Hermès, Kering, Moncler and Prada during the first half of 2023 were spectacular as the industry is bounced back from one of its greatest-ever shocks – the Covid-19 pandemic.

Once the pandemic took hold, demand for luxury items dropped sharply as consumers changed their purchasing behaviours, stores closed under lockdown regulations, and international travel was dramatically curtailed. Once China opened-up, there was a significant amount of positive sentiment surrounding the industry.

However, in the middle of 2023 the positive view of the sector turned. Not only was the reversal of pandemic rules in China failing to produce the economic bounce that was expected, but evidence of a slowdown in demand for luxury goods in the US emerged. in first-quarter earnings reports at the end of April. This trend was then confirmed during the second-quarter reporting season.

A market still growing

The annual Luxury Goods Worldwide Market Study, released by Bain & Company and Fondazione Altagamma, the trade association of Italian luxury goods manufacturers, estimated the overall market reached €1.5 trillion globally in 2023, a robust 8% to 10% growth over 2022. The largest segment in the reviewed sector was luxury cars.

The market for personal luxury goods – which it describes as the “core of the core” of luxury - continued growing and is likely to have reached €362 billion in 2023, more modest year-on-year growth of 4%. However, the market performance softened quarter by quarter. In the Americas region, sales fell at an annual rate of 8% as aspirational customers hit the brakes on luxury purchases. However, top customers still held up, yet partially shifted their spending abroad and toward luxury segments other than products. Sales in mainland China grew by 9% over 2022, with Japan the fastest-growing region, at 17%.

Bain’s analysis suggested that, only about two-thirds of luxury brands were able to post growth in 2023,

The market seemed to stabilise in the final quarter of last year. Fourth quarter results from LVMH, the world’s largest luxury group, showed a positive end to a difficult year. Both revenue growth and profitability exceeded market expectations. The most significant surprise was the positive organic growth in the Wine and Spirits segment, which came after two consecutive quarters of decline. It vastly exceeded consensus expectations after struggling for most of the year. Revenue at the key Fashion and Leather Goods segment grew by 9%. LVMH shares are up by about 14% in the year to date.

Italian fashion house Prada posted a record quarterly profit in the final quarter of 2023, ahead of market expectations, as strong sales of its main product line in Asia helped offset weaker spending in Europe.

Luxury sports car maker Ferrari gave a robust outlook that has helped send its shares up by almost 19% this year. Management confirmed it expected revenues and core earnings will keep growing, supported by a strong order book stretching across 2025.

However, it was not all brightness across the listed luxury companies. Kering reported a slight fall in revenues across the board in the fourth quarter. At Gucci, the conglomerate’s top-performing brand, sales were down 4%, coming in at the lower side of analysts’ expectations.

Bain’s analysis suggested that, only about two-thirds of luxury brands were able to post growth in 2023, compared with about 95% from 2021 to 2022.

But what does 2024 have in store?

Although growth came under pressure in 2023 the luxury goods sector continued to grow. This year, moderate growth of 1-4% is expected, with an acceleration expected in future years. Bain is forecasting that the market value of personal luxury goods will therefore rise to €540bn to €580bn by the end of the present decade. This would be twice the value of that same market back in 2019 (then estimated at €281bn).

The four main factors that it sees driving the industry between now and 2030 are:

  • Chinese consumers should regain their pre-Covid-19 status as the dominant nationality for luxury goods, growing to represent 35% to 40% of global purchases.
  • Mainland China should overtake the Americas and Europe to become the biggest luxury market globally (24% to 26% of global purchases).
  • Younger generations (Generations Y, Z, and Alpha) will become the biggest buyers of luxury by far, representing nearly 85% of global purchases.
  • Monobrand stores and online should become the leading channels for luxury purchases, representing an estimated 60% to 66% market share.

There is plenty of opportunity for the major players in the luxury sector to grow – but they must get their offering right. They must appeal beyond the super-wealthy who are sat on the front rows of the catwalks in New York, Paris, Milan and London and have the right appeal to the right demographic. These are lessons that UK-listed fashion groups Burberry and Mulberry have learned the hard way. Nevertheless, it appears the pursuit of luxury is not going out of fashion just yet.

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Has the luxury-goods industry turned a corner?

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