(News Bulletin 247) – The half-yearly accounts of the major luxury groups listed on the stock exchange showed a clear slowdown in demand in China. This weighed on their profits.

After some prosperous post-Covid years, the luxury market is being caught up in a slowdown in consumption, particularly in one of its main markets, China, which is tarnishing the profits of the sector’s major groups.

Earlier this week, the world’s number one luxury goods company LVMH, a partner of the Olympic Games, announced a 14% drop in its net profit in the first half to 7.26 billion euros and sales down 1% to 41.67 billion euros, below analysts’ forecasts.

Kering (Gucci, Saint Laurent, Bottega Veneta, Balenciaga), already in difficulty for months due to the poor results of its flagship brand Gucci, saw its half-yearly net profit halve compared to the first half of 2023.

The same mood was felt at the British company Burberry, which recorded new “disappointing performances” leading to the replacement of its CEO Jonathan Akeroyd. “We are operating in a context of slowing demand for luxury goods, with all key regions affected by macroeconomic uncertainty and contributing to the slowdown in the sector,” the group lamented.

Chinese demand slows

Sales have slowed in Europe and the United States, but China is the focus of attention. The Asian giant is in the grip of an unprecedented crisis in its vast real estate sector and still-weak consumption.

From April to June, growth in the world’s second largest economy slowed sharply year-on-year (+4.7%), according to official figures published in July, at a rate well below expectations.

Swiss Richemont, owner of Cartier, reported a drop in its sales in the first half of the year in the Asia-Pacific region (excluding Japan) of 18%.

HSBC announced in mid-June that it had a “pessimistic view of the evolution of Chinese demand for luxury products”. Chinese luxury spending is lower than before Covid, when it was growing by 20% per year, according to a mid-June note from Bernstein.

The polarisation of the market between strong brands, whose products are easily resold, and weaker brands will probably be accentuated during this difficult period, believes HSBC.

Hermès, the good student of luxury

Once again, the Hermès group, known for its iconic bags such as the Kelly or the Birkin, which can be resold for more on the second-hand market than new, has managed to pull through. The saddler and leather goods maker published a net profit on Thursday, up 6.4% to 2.37 billion euros, and a turnover up 12% to 7.5 billion euros.

“The strength of the model is the attention we pay to the product,” explained Axel Dumas during a telephone briefing with press agencies. “In difficult times, people come to buy a product that can last, that appeals to them,” according to him.

The manager noted, however, a decline in the “aspirational” clientele, i.e. younger and less wealthy, and fans of “trendy” products, which is reflected in a drop in sales in textiles and fashion accessories.

Smaller Moncler Group, which specializes in high-end down jackets, beat expectations with a “positive performance in mainland China.” “The global macroeconomic environment is highly volatile and unpredictable, and industry trends show continued normalization,” said Moncler CEO Remo Ruffini.

(With AFP)