The luxury sector experienced ongoing slowdowns in the first quarter of the fiscal year, with notable challenges persisting in the Chinese market. While some brands saw success, particularly those catering to high-end consumers, others, especially those targeting aspirational buyers, are facing difficulties.
According to Aurélie Husson-Dumoutier, director of HSBC equity research in luxury and sporting goods, the performance of three major French luxury groups varied significantly. Hermès showed a strong performance with a 17% increase, while Gucci struggled with an 18% decrease, and LVMH’s fashion and leather division fell in between. Overall industry-wide growth remained limited. The tough comparison base from the previous year suggests that Q2 might present even greater challenges.
Miu Miu emerged as a clear winner, achieving an impressive 89% growth in Q1 following an 82% increase in the previous quarter. Additionally, Hermès and Moncler demonstrated growth of 17% and 20% respectively. However, other brands like Gucci, Saint Laurent, and Kering’s ‘Other Houses’ division experienced declines. Burberry and Richemont are yet to report their numbers.
The industry’s performance in the first quarter continued to be polarized, with high-end brands and those with strong momentum faring better than others. Luca Solca, managing director of luxury goods at Bernstein, noted that high-end brands and those with strong momentum, such as Moncler and Brunello Cucinelli, performed well, while brands with high exposure to the middle class struggled.
China remained a challenging market due to softening demand, a tough comparison basis from the previous year, and Chinese customers’ preference for shopping abroad, particularly in Japan. Despite some exceptions like Hermès and Moncler, most brands faced difficulties in China. Kering’s CFO, Armelle Poulou, highlighted a significant drop in traffic in the Asia Pacific region, with Gucci facing particular challenges.
On the bright side, many companies reported revenue surges in Japan, driven by wealthy Chinese travelers taking advantage of favorable exchange rates. However, growth in Japan could be affected if currency exchange rates fluctuate. Despite challenges, HSBC predicts that Japan will lead the luxury sector’s global growth in 2024.
Kering issued a sales warning in March, leading to a decline in profits for the first half of the year. The group is focused on its elevation strategy, although aspirational customers remain a challenge, particularly in North America. Bottega Veneta and Balenciaga showed signs of improvement, but challenges persist.
Looking ahead to Q2, industry growth is expected to further decelerate before rebounding later in the year. The performance gap between top-of-mind brands and others is likely to widen, reflecting ongoing challenges and uncertainties in the luxury sector.
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