Luxury sector outlook clouded by China’s slow recovery
PARIS (Reuters) — Sales updates from Europe’s big luxury brands have offered scant reassurance that Chinese demand for high-end fashion is recovering, leaving a cloud over the outlook for the industry.
Warning on Tuesday that its first-half profit would drop steeply, Kering flagged low demand in Asia, and China in particular, in addition to its struggles to turn around star label Gucci. That sent its shares to six-year lows Wednesday.
Italian luxury group Ermenegildo Zegna also saw revenue fall in the first quarter, dragged down by declining sales of its Thom Browne label in the Greater China region.
The exception was Italy’s family-owned Prada, which reported booming demand for its Miu Miu fashion brand and continued growth in Asia.
Moncler planned to report later on Wednesday and Hermes on Thursday.
Solid reports last week from luxury bellwether LVMH and beauty giant L’Oreal had helped bolster confidence but did not dispel worries about domestic Chinese appetite for their premium goods and the wider sector.
The luxury industry had predicted a challenging first quarter compared to the same period last year, when business surged after China lifted stringent COVID lockdowns.
But a “panoply of headwinds” are keeping Chinese economic growth slow, Deloitte’s Chief Global Economist Ira Kalish told the World Retail Congress in
Paris last week, citing a property crisis, stagnating private sector investment and trade disputes.
The luxury goods industry has come to rely on fast growth in China where its market tripled in size between 2017 and 2021, according to consultancy Bain.
“Everybody was a winner, including the losers,” said Jacques Roizen, managing director of consulting at Digital Luxury Group.
In an environment of slower Chinese growth, he expects the strongest brands to widen their leads.
“When you’re in a market that’s growing at 4 percent, you’re going to have Hermes or Loro Piana growing double-digits, but you’re also going to have many brands with very negative yearover-year results,” Roizen said.
Executives are pinning their hopes on Chinese government stimulus.
“We have yet to see measures that truly boost both the Chinese consumers’ confidence and, therefore, their spending,” L’Oreal boss Nicolas Hieronimus said last week.
LVMH, which sells fashion and accessories from Louis Vuitton and Dior and jewelry from Tiffany & Co., said first-quarter sales in Asia, excluding Japan, were down 6 percent.
But it said Chinese shoppers had purchased an increasing proportion of its goods outside the region while traveling to Japan and Europe — a view echoed by Prada.
Fashion brands like Chanel, Hermes and LVMH’s Louis Vuitton are seen by analysts as placed to reinforce their footholds in China during a period of slow growth because their base of older, wealthy clients is less vulnerable to economic headwinds.