Gucci luxury store in Galleria Vittorio Emanuele Shopping Center in Milan, Italy.
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Europe’s troubled luxury goods industry shows signs of revival after earnings saving season. But China’s continued weaknesses — and the prospect of U.S. tariffs — may leave even the most unique brands fighting for change.
“2024 has been one of the worst years in the industry. We think Simone Ragazzi, senior equity analyst at Algebris Investments, told CNBC via video call last week that we think there will be a normalization,” said CNBC.
Birkin Bag Maker Hermes Posted Blowout fourth quarter sales Earlier this month LVMH and Gucci owners dry Beat quarterly forecast.
Results add long-awaited early predictions The turnover of the industryafter Cartier owners Richmont Last month, its “highest ever” quarterly sales were released in the three months to December.
“The conclusion seems to be the worst, which is likely to be the third quarter of 2024 – we see that in most cases, in the cyclical recovery driven by American and European consumers,” Luca Sole Luca Solca, senior global luxury analyst at Bernstein said via email.
US tariffs threaten loom
However, the question mark remains around the recovery of Chinese consumption – a long-term pillar of the luxury market, and our tariffs hinder the prospects of the industry and beyond.
China sales remained the recurring theme of the fourth quarter report, L’Oreal Kering’s Gucci (especially for market exposure) Sales decline In the country. Meanwhile, the possible taxation of European companies under U.S. President Donald Trump, coupled with broader macroeconomic uncertainty, is a key feature of the earnings call.
Zuzanna Pusz, head of European luxury goods at UBS, told CNBC that if additional responsibilities are to be imposed, companies could pass those responsibilities to consumers through price increases, which Kering and Hermes might do earlier this month of. However, she noted that some companies will prove the additional price increase more difficult than others.
“We’ve risen from high prices. If companies are to have 25% tariffs, it’s hard to offset those tariffs,” Lagaz agreed.
The luxury industry in Europe is unusual because most of its business cannot be replicated in overseas markets like the United States, which is a key intention for Trump’s import allegations. For example, a “Made in Italy” label is awarded on a leather jacket, depending on the product produced there.
Puss said this shows that luxury companies can exempt the most penalties. But to some extent, trade levies hurt the prices in target economies, such as China – by raising overall prices and hindering consumer sentiment, which may be the focus of the industry.
“Anything that will have a negative impact on the Chinese economy will be risky,” Puss said via video call earlier this month.
The best part of the difference between others
Analysts agree, which in turn could intensify existing differences between the best and worst companies in the luxury market.
“Whether it’s tariffs or any other shock, when consumers have to buy fewer things, they will become more selective and they will bring more options to their favorite brands,” Pusz said.
Carole Madjo, head of European luxury research at Barclays, noted that some luxury brands have been punished for their “lack of innovation (and) high prices” recently and will have to prove their prices justified.
Gray leather Hermes Birth Bag on a Street Style Fashion Photo Conference in Paris on May 16, 2024.
Edward Berthelot | Getty Images Entertainment | Getty Images
“As the macroscopic is getting more challenging…they buy less, but they buy better,” Madjo told CNBC.Squawk Box Europe“Earlier this month.” The industry is now aware of all these issues and is trying to start with some solutions. ”
Analysts agree that at least in the short term, higher quality brands and brands exposed to the high-end consumer base may stay ahead.
“The quality name may be brighter in the industry’s trait challenges,” Bernstein’s Solca said in a note last week, noting that the continued qualifying brands such as Richemont and Hermes Strength, with Moncler and Burberry as growth prospects.
“The biggest problem is what luxury is meant,” Lagaz notes. “It is becoming increasingly obvious that the brand’s past goodwill or legacy has disappeared.”
