Will boycotts cause instability in luxury market in 2024?

Many people around the world are in boycott mode, yet the luxury goods market in the GCC is expected to reach US$6.97 million in 2024, growing at an annual rate of 3.54 percent, which prompts me to ask: Are people boycotting only outside the GCC?

With the unstable global situation, war in the Middle East, and a record number of countries holding elections in 2024, the luxury market worldwide is facing turbulence, especially in Europe and the US. Analysts say that consumers are more cautious about spending because they are concerned about the current political and economic situation. This is what luxury brands and retailers are bracing for over the next six to twelve months, as materialistic consumers worldwide continue to cut back on spending in what remains an uncertain macroeconomic climate.

With interest rates still high, questions swirling about the Gulf region and the appetite for luxury among high-net-worth individuals (HNWIs) and Chinese consumers, it is no wonder that analysts, brand leaders and industry figures are conservative in their outlook for 2024. Is this just a short period of difficult times due to the uncertain economic climate as analysts point out, or is it related to boycotts?

Barclays says it is taking a “cautious approach” and expects the luxury market to “fully materialize” in 2024, warning that some brands may face “negative growth” due to a significant drop in sales compared to the first half of 2023. I think these brands need to pay particular attention to this worrying situation.

HSBC gave its 2024 forecast the cheerful title “Goodbye Stellar Growth”, noting that normalization could extend into 2025. The initial dramatic growth was linked to revenge buying after the COVID-19 lockdowns, and analysts believe that we are now returning to the normal pre-Covid situation. HSBC expects average growth of 8 percent in 2024 and 2025. In my view, some people are boycotting, while others are being selective in their buying behavior.

In their joint report, Altagamma and Bain & Co said they expect “softening personal luxury goods performance in 2024”, with low-to-mid single-digit growth over 2023, based on “fragile consumer confidence, macroeconomic tensions in China, and sparse signs of recovery in the US”, and that 2024 will be “a defining moment for brands, and the winners will separate themselves through resilience, relevance, and renewal — the basics of the new value-centered luxury equation”.

I believe that Altagamma and Bain & Co should have included the Middle East, or at least the GCC, in their report, knowing that they represent a large part of the market, whether in the Gulf region or through outbound travel. In fact, the purchasing power of the Gulf region plays a significant role in the luxury market. Moreover, Mytheresa CEO Michael Kliger stated, “There are significant challenges for all participants in this market,” suggesting that the current decline in luxury consumption is significantly worse than predicted due to the sector’s extended boom years and the post-pandemic shopping frenzy.

He believes that a return to growth will depend on numerous factors, “We have one consumer segment that is not currently buying: the aspirational customer. To bring them back, we’ll need a more optimistic economic outlook “. I think Mr Kliger knows very well that the aspirational customer is Middle Eastern, because the boycotts have also affected that sector, even if only for a short period of time. Turnaround brands also face hurdles. These luxury brands, which have lost market share over the last three years, now need to increase investment to support new designer collections.

Kering, Burberry, Ferragamo, and Tod’s are expected to underperform. Moncler and Swatch, both downgraded to “neutral”, face significant challenges: Moncler has slower growth and deteriorating profit margins, Swatch faces the cyclical nature of the luxury watch market, excluding brands such as Rolex, AP and Patek Philippe, which are tied to supply.

LVMH received a positive rating. Despite the recent share price decline, the company’s diversified brand portfolio and smart industry positioning make its current prices attractive. Bank of America sets its price estimate for LVMH at 32 percent above the current market value. Despite its overall cautious stance, Bank of America is optimistic on some companies, with Hermes, known for its resilience during economic downturns, its top pick for 2024.

In general, experts predict a lackluster year for the top brands, with organic growth forecasts ranging from 4 percent to 8 percent, and sales weighted toward the second half of 2024. A significant portion of the increase will come from Asia, while demand in the United States and Europe is expected to remain flat.The outlook for Chinese demand remains uncertain. I believe that investors and industry stakeholders need to be aware of these complex dynamics and identify the risks and opportunities in this volatile but potentially profitable market.