by Mimosa Spencer

PARIS (Reuters) – Sluggish sales at the start of the end-of-year holiday season at high-end fashion retailers, such as Bergdorf Goodman in New York, are raising fears of an overstock situation and an increase in discounts to the detriment of Branding.

Spending on luxury goods remained negative in November, down 15% year-on-year, following a 14% decline in October, according to recent Barclays data on U.S. credit card usage released Wednesday. .

This figure “does not give cause for optimism” for the fourth quarter, with weak trends in the United States calling for caution on luxury brand results during the period, Barclays analysts said.

Citi credit card data released Wednesday showed that purchases of luxury fashion products fell 9.6% in November from a year ago, following an 11.4% decline in October. Larger declines were seen in department stores and online, with a decline of 13% year-on-year in November.

Retailers started the season with excess inventory, said consultant at Alix Partners Olivier Abtan, noting that last year’s orders were placed before the sector slowed after months of post-pandemic frenzy.

“They (retailers) have already started the season with excess inventory compared to usual levels.”

LVMH, Kering and Burberry have seen their shares fall by 12%, 23% and 33% respectively since the start of August. The stock of e-commerce operator Farfetch fell 90%, losing the majority of its value.

“We know that the American consumer will remain reasonable and that retailers must adapt,” said Caroline Reyl, senior manager for the Premium Brands strategy at Pictet Asset Management, a shareholder of LVMH.

Conflict in the Middle East has added to uncertainty over the luxury industry’s outlook already clouded by inflation, with U.S. and European consumers turning cautious, while a real estate crisis in China dampens hopes for a strong rebound after the pandemic.

The drop in spending comes at the key period at the end of the year, with the months of November and December representing 25% of annual sales.

“We know that it’s not going to be a good Christmas for luxury houses, but we don’t yet know to what extent,” summarizes Olivier Abtan.

Department stores could feel the effects of slowing demand over the next six to 12 months, Citi analysts say, a potential challenge for luxury brands that generate a significant portion of their sales outside of their boutique networks. .

Department stores, especially in the United States, are known for their aggressive discounts, which attract customers to the stores. However, price reductions risk eroding the appeal of fashion brands and encouraging consumers to postpone purchases.

Major international brands like Hermès, Chanel, Louis Vuitton and Dior (LVMH) strictly control their retail business, selling mainly in their own stores, to avoid discounts and maintain their brand image.

Direct-to-consumer sales of premium brands increased from 40% of the personal luxury goods market in 2019 to 52% in 2023, according to Bain.

Analysts, however, believe that fashion houses are better equipped than during the crisis of 2008 and 2009, which led to a sudden slowdown in spending.

Since the previous crisis, brands have used artificial intelligence to anticipate sales volumes and adjust production, while adjusting the proportion of seasonal models and more permanent styles.

The end of 2023 will be “a season for bargain seekers, but not the markdown season of the century,” judges Mario Ortelli, luxury goods consultant.

Mathilde Haemmerle, partner at Bain, says technology has played an “extremely important role” in preventing excess inventory. To better estimate sales volumes, AI looks at variables such as macroeconomic indicators, sales history of comparable products and trends observed on social media, she said.

Big brands are also more agile, having halved their development time over the past 15 years by streamlining production and consolidating certain stages of production, explains Olivier Abtan.

“It still changes the situation,” he said.

(Reporting Mimosa Spencer; Dagmarah Mackos, editing by Kate Entringer)

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