Dive Brief:
- The global luxury goods market is expected to see persistent struggles through the rest of 2024, according to a newly released report from HSBC Global Research.
- Analysts, who subtitled the new report “Cruel Summer,” revised their outlook for sector organic growth to 2.8% for 2024, down from a previous forecast of 5.5%. The new projections, stated analysts, are based on “several changes in companies’ forecasts in late July” as well as additional downgrade estimates noted in the report.
- For this report, HSBC covered Burberry, Hermès, Kering, LVMH, Richemont, Swatch, Moncler brand and Prada retail. Based on estimates, analysts said 2024 marks the sixth worst year for the luxury sector in the past 20-year period.
Dive Insight:
Some of the world’s top luxury companies have seen earnings fall this year, with LVMH, Kering, Salvatore Ferragamo, Burberry and Lanvin reporting double-digit drops in various metrics in H1. Although there have been bright spots for the sector, including H1 revenue growth at Prada Group and Hermès, the overall luxury goods market is languishing.
“As a result of our estimates being lowered, we no longer expect a return to double-digit growth in Q3 or Q4 2024 and this despite a much easier basis of comparison,” the HSBC report stated. “Our new forecasts factor in the weak macro environment and negative sector news flow received during the summer.”
Analysts stated in the report that they expect to see an average 3% organic growth in Q3 and 4% in Q4.
The report forecasts ranged from a 10% Q3 decline in organic growth at Burberry to a 21% boost for Prada retail in the same period. Analysts said Q3 2023 was the lowest comparison base of the year for the eight companies HSBC covers and added, “it would be logical that Q3 2024 shows some sharp acceleration” versus the 1% decline in the second quarter of 2024.
“However, considering what luxury peers have mentioned regarding the month of July and the very lacklustre news flow we received during the summer we now believe that Q3 should be the weakest quarter on a two-year stack basis,” HSBC analysts said in the report. “Polarisation should continue to be stronger than ever as the average of 3% organic growth that we expect for Q3 2024 is a mix of sharp declines (Gucci -18% … Burberry -10%) and nice growth (Hermès +10%, Prada group retail +21%).”
The report attributed luxury sector struggles to spending decelerations in China and the U.S., and called luxury spending in Europe “a mixed bag.”
“European consumers have been adopting a wait-and-see attitude and [are] likely victims of ‘greedflation,’ with many brands increasing prices post-COVID just because they could get away with it rather than just a pure reflection of inflationary pressures,” the report stated.
Meanwhile, analysts said that American consumers and particularly aspirational ones, “seemed to be priced out or at least impacted by inflationary pressures and a high interest rate environment.”
Additionally, analysts cautioned that consumers in China are “holding back on spending despite solid savings.”
By contrast, Japan spending in the sector “remained very strong, boosted by Chinese tourism, other Asian tourism flows and also some American tourism.”
Looking ahead to next year, analysts said they expected to see 7% growth in 2025, and a return to high single-digit growth “as soon as Q1 2025, and probably double-digit growth in Q2 2025,” because “the weaker the base, the stronger the rebound.”
