Cracking the Luxury Code: Analyzing the Depth of the Luxury Slowdown

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In the world of high-end fashion and opulence, storm clouds are gathering. The post-pandemic surge in luxury sales is fading, and it’s not a matter of if a downturn will strike but rather how severe it will be and how long it will linger. The recent soft sales report from industry titan LVMH, which revealed only 9 percent growth in the third quarter for its fashion and leather goods unit, sent shockwaves through the sector. The colossal brand behind Louis Vuitton and Dior watched its stock plummet by over 8 percent, marking its most substantial intraday decline in nearly two years. It’s a stark reminder that even the mightiest brands are not immune to the economic currents, stirred by events ranging from the Federal Reserve’s interest rate hikes to China’s property market upheaval.

As luxury conglomerates like LVMH grapple with this new reality, their counterparts, including Kering and Burberry, are also feeling the repercussions. Among the select few seemingly untouched by the luxury slump, Hermès, renowned for its timeless allure, is expected to report a slowdown of its own. The attention-grabber in this financial ballet, however, is Kering. As they unveil their financials, a tale of struggle and resilience takes center stage. Notably, some of Kering’s prized brands, like the cash-cow Gucci, were already facing challenges before the luxury downturn set in.


Kering’s Battle on Two Fronts

Photo: Sarah Meyssonnier

On Tuesday, all eyes will be on Kering, and here’s where the intrigue begins. Kering, a French conglomerate housing several influential brands, is facing a pivotal moment. Pre-existing challenges within its stable were further aggravated by the broader sector’s slowdown. The company contends that its difficulties are transient. For instance, Gucci’s last quarter sales figures do not mirror the transformative work of new designer Sabato De Sarno, and Balenciaga has only recently recommenced the marketing extravaganzas that once elevated the brand before a scandal ruffled its feathers last fall.

But the gauge of Chinese social media, following De Sarno’s debut, sends cautionary signals. It suggests that Gucci may find it challenging to recapture newly frugal luxury consumers. The key here is patience. Kering remains a steadfast giant, holding its ground in the midst of a tempest, but the battle is far from over.


Echoes of the E-commerce Bubble Burst

The luxury slowdown bears eerie similarities to the collapse of the e-commerce bubble just last year. Both scenarios share a common catalyst: the pandemic altered consumer shopping behaviors, propelling the sector to record-breaking heights. However, the “new normal” has proven to be a fleeting moment of brilliance, with a return to a more sobering reality. The likes of LVMH and Kering may find solace in this shift. As valuations in the luxury realm reset, opportunities to acquire smaller, struggling competitors emerge. Kering, for one, is evidently in pursuit of deals that would further amplify its market presence. With a 30 percent stake in Valentino and a $3.8 billion acquisition of Creed, they are signaling an appetite for expansion in this seemingly retreating luxury landscape.

Photo: Yves Herman

The Unequal Battle Ahead

It’s essential to remember that LVMH, Kering, Hermès, and their counterparts are not fledgling startups but industry behemoths. They have weathered storms in the past and will do so again. However, the coming luxury downturn is poised to be an uneven playing field. As we await the week’s financial reports, it remains to be seen just how much turmoil each of these giants will endure. The luxury landscape is undergoing a seismic transformation, and only time will reveal who emerges from the tempest unscathed and who bears the brunt of the storm.

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