Inflation, economic slowdown is hitting luxury brands too
Business
Last month saw Kering, LVMH and Hermes shares falling 9pc, 7pc and 4.5pc respectively
PARIS (Web Desk/Reuters) – The rising cost of living is impacting economy around the world as even the high-end brands have been witnessing reduced sales with the effects visible in traditional markets like the United States and Europe.
Although the share China in luxury items’ sales has increased but the economic slowdown in the world second-biggest economy means the trend may not sustain as they are forcing to rethink and introduce afforadable products.
The state of affairs is forcing the luxury giants to target consumers in emerging markets like India. However, these efforts can’t compensate the losses in short-term or medium term.
Read more: LVMH, Gucci, others to expand in India where number of millionaires is rising rapidly
It is in this context that Reuters in a report says French luxury group Kering's sales are likely to have slowed again in the third quarter as it seeks to reignite its star label Gucci under a new creative direction and the sector shows signs of easing demand for high-end fashion.
Shoppers in Europe and the United States are cutting down on high-end purchases, while the sector’s performance in China – a key growth engine – is complicated by record high youth unemployment and a property crisis.
Kering sales are expected to fall by around 6 per cent on a comparable basis, according to consensus estimates cited by Bernstein. It reports on Tuesday.
Rival LVMH's recent sales update showed demand for high-end fashion falling from post-pandemic peaks, resetting investor expectations for more normalized growth levels after months of forecast-busting growth.
"The wakeup call has been pretty brutal", analysts at HSBC said on Monday, noting investors underestimated industry caution.
TD Cowen analysts lowered its third-quarter sales estimates for Kering to down 7.7pc year-on-year, from an original forecast for a 0.3pc rise.
The choppy economic outlook complicates Kering's efforts to revive sales at Gucci, which accounted for over half of sales and nearly two-thirds of group profit last year.
Once one of the industry's biggest success stories, doubling sales to nearly 10 billion euros ($11 billion) between 2015 and 2019, Gucci lost ground to rivals like LVMH's Dior and Louis Vuitton, which rebounded strongly from the pandemic.
Gucci's new designer Sabato De Sarno in September introduced the brand's aesthetic reset, with sensual, minimalist styles at his debut fashion show in Milan.
The styles, which won't hit stores before the end of the year, marked a shift from the eccentric, gender fluid designs of his predecessor, Alessandro Michele.
The fresh approach, including "hot pieces" like platform loafers and updated versions of the Jackie bag, prompted positive feedback in the days that followed. But online interest faded to pre-show levels fairly quickly, said JPMorgan, predicting the turnaround could take time.
In the last month, Kering shares fell around 9pc, while LVMH shares shed 7pc, and Hermes shares are down 4.5pc.
For analysts at Bernstein, who surveyed buyers for fashion retailers, there was not enough on the catwalk to suggest a "fast and material" re-acceleration at Gucci.
The shift to classic may make the collections more commercial but it pitches Gucci against incumbents like Prada, Dior, Hermes, Loro Piana and Chanel – whereas Gucci thrives when "over the top", style-wise, added Bernstein.
