Europe’s troubled luxury goods industry may be on the mend this year as early indicators point to improved consumer spending and a shift in business focus away from China. Last week, Cartier owner Richemont reported its “best ever” quarterly sales in the three months to December, pointing to a rebound in consumer demand over the holidays that analysts say is likely to continue By 2025, luxury brand shares rose in last week’s trading. The earnings improvement was seen as a positive initial sign ahead of broader fourth-quarter data for an industry that has been plagued by lower consumer spending, especially in the all-important Chinese market. “There is an element in Richemont’s numbers that is definitely due to an improving cyclical demand environment,” Luca Solca, managing director and global head of luxury goods at Bernstein, told CNBC by phone on Friday. . Talking about the improvement in global macroeconomic conditions, he said: “This will obviously be a simultaneous wave. “Expectations from other companies are now higher due to reports this earnings season,” UBS said in a note on Friday. However, Bank of America Global Research said the improving economic environment is unlikely to be a panacea for all companies, describing the year ahead as a game of “snakes and ladders.” “The luxury industry will experience many ups and downs in 2025,” analysts wrote in a report on Thursday. LVMH, Kering, Hermès focus investors now turning their attention to Europe’s major luxury brands in the fourth quarter profit. LVMH, which owns brands such as Louis Vuitton and Moët Hennessy, will provide an important indicator of the handbags and leather goods sector, where prices have improved in recent quarters The rise was more dramatic. Bank of America said LVMH, which will report earnings later this month, is likely to join Richemont as one of the sector’s better performers, while UBS upgraded the stock in a Jan. 2 report. Listed as neutral. Bernstein’s Solca was less optimistic, however, citing “long-term” problems at the company after it reported its first quarterly sales decline since the pandemic in October. Solca said: “LVMH’s data may be better than the third quarter, but it is definitely not as good as Richemont Group.” Hit hard by a profit warning, it is expected to continue to lag its peers as it develops a strategy to boost its brand, the fashion world’s Gucci brand. Bernstein highlighted the challenges facing the company’s “Gucci Transformation” vision, especially given Gucci’s reliance on the Chinese market. Hermès, meanwhile, is expected to remain the industry leader, dominating the high-end market as continued demand for its unique Birkin handbags drove third-quarter sales up 11%. UBS and Bernstein are both bullish on the stock, with the latter forecasting double-digit revenue growth in 2025. The dynamic economy is sluggish and the impact of recent stimulus measures remains to be seen. In their place, however, is a new wave of wealthy U.S. consumers who have benefited from a rally in stocks, a stronger U.S. dollar and rising cryptocurrencies in the wake of President Donald Trump’s election, spurring holiday spending. Richemont Group’s U.S. growth rate doubled to 22% in the third quarter, but the Asia-Pacific region fell 7%, mainly due to the decline in the Chinese market. The group’s 19% growth rate in Europe is also largely attributable to visitor spending from North America. Analysts say the North American market may now become the brand’s main target in 2025, with Bank of America predicting that U.S. shoppers will account for more than 50% of industry revenue growth this year. Meanwhile, Bernstein in November downgraded China’s luxury consumption outlook for fiscal 2025 to low single digits. “After ten quarters of decline, U.S. luxury consumption is showing signs of a (fragile) recovery,” Bank of America wrote. The threat of renewed U.S.-China tensions under the new Trump administration could hasten this shift. , new tariffs could deal the hardest blow to China’s economy and exacerbate currency volatility. “If Trump imposes new tariffs, there will still be challenges[for China]. That’s why luxury goods companies are definitely more interested in the United States than China,” Solca said. A return to creativity Meanwhile, analysts say luxury brands are also expected to signal a return to a more opulent aesthetic in their forward-looking statements, after a period of understated “quiet luxury” styles led to some brands being watered down. “(Quiet luxury) lowers the barrier to entry,” Bank of America wrote. “The industry should return to creativity, fashionable content and novelty.” Solka agreed, noting that it will take a period of “atonement” for certain brands that have been criticized in recent years for excessive prices and simplistic aesthetics. Alienated consumers. “We may be at the end or approaching the end of this quiet luxury trend, but a more pleasing aesthetic will soon emerge,” he said.
The Louis Vuitton store on the Champs Elysées in Paris is decorated for Christmas.
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Europe’s troubled luxury goods industry may be on the mend this year as early indicators point to improved consumer spending and a shift in business focus away from China.
