(News Bulletin 247) – In a note published this Tuesday, the Sino-British bank warns that the morale of consumers of luxury products remains lackluster. She also believes that “greedflation” has gone too far.

For two sessions, luxury groups have been catching their breath on the stock market. This Tuesday at the start of the afternoon, LVMH fell by 1.1%, Kering by 0.9% and Hermès by 0.6%.

The sector may suffer from profit-taking after posting superb performances last week following the measures announced by China to revitalize its growth and revive a flagging real estate sector.

For example, Hermès gained 15.6% over the whole of last week, LVMH 18.8%. However, the short-term horizon in China remains sluggish. This is what HSBC bank, whose analysts spent two weeks in Hong Kong and mainland China, underlines in a note published this Tuesday.

At the end of this trip, analysts from the Sino-British bank concluded that “the road to the recovery of Chinese consumption of luxury products will be long.”

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Waiting for better days

“Consumers still have an appetite for brands and we believe that the concept of ‘luxury shame’ (the reluctance to buy very luxurious products, Editor’s note) is a Western invention. However, while savings are high “, the mood seems rather poor and consumers have abandoned the high-end shopping centers, waiting for better days”, they elaborate.

Analysts note that Hainan, a Chinese resort island known for its shopping malls, is currently “gloomy” after a typhoon, and that Hong Kong is “calm” as are Shanghai’s shopping centers. In the same vein, luxury growth in Japan, which had been driven by spending by Chinese tourists in the archipelago, is slowing down sharply due to the rise in the yen.

“The recurring question from companies is the following: ‘Where have they (consumers of luxury products) gone and when will they come back?'”, continue the analysts who judge that the hope would be that demand will take off of luxury goods occurs at the end of next year in China.

“It is to be hoped that a combination of product initiatives, a more favorable basis for comparisons and, above all, significant stimulus measures announced on September 24, 2024, can begin to restore confidence in the future,” add -they.

Too greedy a “greedflation”

Furthermore, HSBC analysts believe that “greedflation” is hurting. “With a few rare exceptions, such as Louis Vuitton, Hermès, Moncler or Loro Piana, most brands have increased their prices too sharply and too quickly,” analysts say. “It is clear to us that Dior, Saint Laurent, Burberry, Cartier and many others would benefit from the reconstruction of a springboard allowing the ambitious consumer to return after having been excluded by price,” they consider.

In view of these considerations, HSBC has reduced its growth forecast for 2025 for all the groups in its coverage with an average of 5.5%, compared to 7% in its previous forecast, which dated from September. For French groups, the Sino-British bank expects growth of 4.3% for Kering, 5% for LVMH, and 9.4% for Hermès. In mainland China, growth would not exceed 2%, according to these estimates.

HSBC concludes that apart from Prada and Moncler, which it recommends buying, “there is no urgent need to do anything at the moment” in the sector.

This observation is consistent with that made on Monday by UBS which considered that it was “too good” to be “constructive” on the demand for Chinese luxury products.

“While details of government support measures are still awaited, we remain of the view that this may not be enough to drive a rebound in Chinese demand for luxury goods (around 30% of sector sales), given given the importance of real estate prices in creating a wealth effect for the consumer,” explained the Swiss bank.