Persisting troubles in affluent circles: study revealed
The global luxury goods market is bracing for persistent struggles throughout the remainder of 2024, as per a report from HSBC Global Research, titled "Cruel Summer." The report revised the outlook for sector organic growth to 2.8% for 2024, down from a previous forecast of 5.5%.
The report attributes these struggles to spending decelerations in China and the U.S., and a mixed picture in Europe. Consumers in China are holding back on spending despite solid savings, while American consumers, particularly aspirational ones, are being impacted by inflationary pressures and a high interest rate environment.
However, the luxury sector in Japan remains very strong, boosted by Chinese tourism, other Asian tourism flows, and some American tourism. This contrasting picture is reflected in the forecasted organic growth for Q3 and Q4, with analysts expecting an average 3% growth in Q3 and 4% in Q4 for the sector.
The report predicts a 10% Q3 decline in organic growth at Burberry and a 21% boost for Prada retail in the same period. Several top luxury companies, including LVMH, Kering, Salvatore Ferragamo, Burberry, and Lanvin, have seen earnings fall this year.
Despite these challenges, analysts remain optimistic about the future of the luxury sector. They expect 7% growth in 2025 for the sector, with a return to high single-digit growth as soon as Q1 2025, and possibly double-digit growth in Q2 2025. The weaker the base, the stronger the rebound is expected for the luxury sector in 2025.
Notable exceptions to the sector's struggles are Prada Group and Hermès, which have seen H1 revenue growth. However, the overall luxury goods market is languishing, with European consumers adopting a wait-and-see attitude due to perceived 'greedflation.'
For the report, HSBC covered Burberry, Hermès, Kering, LVMH, Richemont, Swatch, Moncler brand, and Prada retail. Many luxury brands have increased prices post-COVID, not solely due to inflationary pressures. The report states that 2024 marks the sixth worst year for the luxury sector in the past 20-year period. Despite these challenges, the luxury sector continues to be a significant player in the global economy, and the outlook for 2025 remains hopeful.
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