Sales updates from Europe's major luxury brands have offered little comfort regarding the recovery of Chinese demand for high-end fashion, casting a shadow over the industry's prospects.
Citing low demand in Asia, particularly in China, Kering warned that its first-half profits would significantly decline
Italian luxury group, Ermenegildo Zegna also witnessed a revenue decline in the first quarter, attributed to decreasing sales of its Thom Browne label in the Greater China region. However, family-owned Italian brand, Prada reported strong demand for its Miu Miu fashion brand and sustained growth in Asia.
Despite solid reports from luxury bellwethers LVMH and L'Oreal, concerns persist regarding Chinese consumers' appetite for premium goods and the broader sector.
The luxury industry had anticipated a challenging first quarter compared to the same period last year when business surged following the lifting of stringent COVID lockdowns in China. However, various factors, including a property crisis, stagnant private sector investment, and trade disputes, are impeding Chinese economic growth, according to Ira Kalish, Chief Global Economist, Deloitte.
The luxury goods sector had been heavily reliant on rapid growth in China, which tripled in size between 2017 and 2021, according to Bain consultancy. However, in an environment of slower Chinese growth, Jacques Roizen, Managing Director –Consulting, Digital Luxury Group, anticipates that leading brands will widen their leads while others may experience negative year-over-year results.
LVMH noted a 6 per cent decline in first-quarter sales in Asia (excluding Japan) but highlighted an increasing proportion of Chinese shoppers purchasing goods outside the region, particularly in Japan and Europe. Similarly, Prada too echoed this trend.
Analysts believe that fashion brands like Chanel, Hermes, and LVMH's Louis Vuitton are well-positioned to strengthen their presence in China due to their base of older, affluent clientele, which is less susceptible to economic uncertainties. These brands can invest in marketing events and upscale retail spaces to capitalize on this advantage.
Despite the challenges, LVMH remains committed to expanding its retail network in mainland China, although internal discussions have occurred regarding the pace of these projects, according to Jean-Jacques Guiony, CFO.
Kering has also intensified its efforts in China by expanding its management team and resuming in-store training, albeit cautioning that results will require patience to materialise, according to Armelle Poulou, CFO.
