WRAPUP 1-Luxury sector outlook clouded by China's slow recovery

But it said Chinese shoppers had purchased an increasing proportion of its goods outside the region, while travelling to Japan and Europe - a view echoed by Prada on Thursday. Fashion brands like Chanel, Hermes and LVMH'S Louis Vuitton are seen by analysts as placed to reinforce their footholds in China during a period of slow growth because their base of older, wealthy clients is less vulnerable to economic headwinds.


Reuters | Updated: 24-04-2024 21:17 IST | Created: 24-04-2024 21:17 IST
WRAPUP 1-Luxury sector outlook clouded by China's slow recovery

Sales updates from Europe's big luxury brands have offered scant reassurance that Chinese demand for high-end fashion is recovering, leaving a cloud over the outlook for the industry.

Warning on Tuesday that its first half profit would drop steeply, Kering flagged low demand in Asia, and China in particular, in addition to its struggles to turn around star label Gucci. That sent its shares to six-year lows on Wednesday. Italian luxury group Ermenegildo Zegna also saw revenue fall in the first quarter, dragged down by declining sales of its Thom Browne label in the Greater China region.

The exception was Italy's family-owned Prada, which reported booming demand for its Miu Miu fashion brand and continued growth in Asia. Moncler will report later on Wednesday and Hermes on Thursday.

Solid reports last week from luxury bellwether LVMH and beauty giant L'Oreal had helped bolster confidence but did not dispel worries about domestic Chinese appetite for their premium goods and the wider sector. The luxury industry had predicted a challenging first quarter compared to the same period last year, when business surged after China lifted stringent COVID lockdowns.

But a "panoply of headwinds" are keeping Chinese economic growth slow, Deloitte's Chief Global Economist Ira Kalish told the World Retail Congress in Paris last week, citing a property crisis, stagnating private sector investment and trade disputes. The luxury goods industry has come to rely on fast growth in China where its market tripled in size between 2017 and 2021, according to consultancy Bain.

"Everybody was a winner, including the losers," said Jacques Roizen, managing director of consulting at Digital Luxury Group. In an environment of slower Chinese growth, he expects the strongest brands to widen their leads.

"When you're in a market that's growing at 4%, you're going to have Hermes or Loro Piana growing double-digits, but you're also going to have many brands with very negative year-over-year results," Roizen said. Executives are pinning their hopes on Chinese government stimulus.

"We have yet to see measures that truly boost both the Chinese consumers' confidence and, therefore, their spending," L'Oreal boss Nicolas Hieronimus said last week. PATIENCE

LVMH, which sells fashion and accessories from Louis Vuitton and Dior and jewellery from Tiffany & Co., said first-quarter sales in Asia, excluding Japan, were down 6%. But it said Chinese shoppers had purchased an increasing proportion of its goods outside the region, while travelling to Japan and Europe - a view echoed by Prada on Thursday.

Fashion brands like Chanel, Hermes and LVMH'S Louis Vuitton are seen by analysts as placed to reinforce their footholds in China during a period of slow growth because their base of older, wealthy clients is less vulnerable to economic headwinds. They can thus invest more in marketing events and expanded, higher quality, retail spaces.

"China will succeed in reboosting its economy," LVMH chairman and chief executive officer Bernard Arnault told journalists last week. French-based LVMH is pushing ahead with plans to expand its retail network in mainland China, although chief finance officer Jean-Jacques Guiony said last week that doing so had been the subject of internal debate.

"This is a question that has been agitating us for a while," he said when asked if he was comfortable with the number of projects underway in China. Kering has bulked up its Chinese management team, resuming in-store training that had been paused during the pandemic and partnering with local brand ambassadors. But such efforts would not bring immediate results, the company cautioned.

"It will take some time to bear fruit, and we know it requires some patience," said Kering CFO Armelle Poulou.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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