Luxury is more than just a product. It’s a lifestyle statement, a sign of status, and a mark of refined taste. Luxury today goes beyond the world of fashion, handbags, jewelry, and cosmetics to include experiences, art, real estate, and more. It represents an indulgence in the finer things in life – the pursuit of quality, craftsmanship and exclusivity, and appeals to discerning consumers around the world.
However, in 2024, the luxury goods industry will face an increasingly challenging environment. Economic uncertainty, geopolitical tensions and inflationary pressures are increasing, casting a shadow on previously resilient markets. As these headwinds intensify, more discerning French luxury investors are paying attention to which stocks can withstand the storm and emerge even stronger. Are all French luxury stocks similarly poised to overcome these challenges? And how can investors make informed decisions amid these changing market dynamics?
China, a key driver of luxury goods demand, is experiencing a notable growth slowdown. China’s GDP growth rate in the third quarter of 2024 was only 4.6%, falling short of the government’s target of 5% and a decline from the previous quarter. China’s economic growth rate in the first three quarters of 2024 averaged 4.8% year-on-year, revealing a gradual slowdown.
Recent data shows some signs of stabilization, with China’s Purchasing Managers’ Index (PMI) reaching 50.1 in October, the first expansionary reading since April. Similarly, the non-manufacturing PMI rose to 50.2, indicating a modest improvement in services.
While these indicators suggest a potential rise in economic activity, challenges remain for China, particularly in the real estate sector, which has long been the bedrock of the economy. Continued struggles in the real estate market are creating ripple effects, impacting construction, manufacturing and consumer spending. Declining consumer and business confidence will put further pressure on the broader economy.
To address these economic challenges, the Chinese government has introduced various stimulus measures, including increased fiscal spending. Further details of these plans may emerge at the upcoming Congressional meeting (November 4-8). A similar meeting in 2023 saw China’s budget deficit increase from 3% to 3.8%, underscoring the government’s efforts to support the economy.
The health of China’s economy is of particular concern to the global luxury goods industry. In 2021, Chinese consumers accounted for more than 35% of global luxury sales, and Luxonomy predicts this number will rise to 45% by 2030. According to Mordor Intelligence, spending on luxury goods in China is expected to reach 120 billion euros this year alone, an increase of 33% compared to two years ago. But as China faces economic headwinds, there is growing uncertainty about how this will affect luxury spending.
story continues
Brands with strong ties to China, such as French luxury goods brands such as LVMH, Kering and Hermès, are closely monitoring these developments. For these companies, which are highly dependent on Chinese consumers, adapting to this changing landscape will be critical to sustaining growth and meeting investor expectations. This dependence highlights the importance of picking French luxury stocks that are well-positioned to weather economic pressures and take advantage of China’s recovery.
The luxury goods sector has come under intense scrutiny as the post-pandemic spending surge slows and concerns over a decline in demand for luxury fashion, particularly in China. Investors see French luxury goods stocks volatile, reflecting market anxiety about economic headwinds. But it’s worth noting that the French luxury goods giants have overcome these challenges in different ways, with the sector’s top companies performing unevenly.
Kering faces significant challenges, with third-quarter sales falling by 16% to 3.79 billion euros, more than expected, compared to analysts’ expectations of an 11% decline. The company expects a significant decline in annual operating profit, with some forecasting that revenue could be nearly halved by the end of the year. Much of this decline is attributable to Kering’s flagship brand, Gucci, which has struggled to regain momentum despite continued brand revitalization efforts.
Kering relies heavily on status-conscious luxury-seeking consumers and has been hit hard by China’s weak consumer spending. This dependence casts doubt on Kering’s recovery, as weak sales in the region could lead to further declines in earnings. Investors will be watching to see how Kering adapts to changes in the luxury goods market and whether it could recover in 2025.
LVMH, often seen as a bellwether in the luxury goods industry, saw worrying demand from Chinese consumers in the last quarter as trust reached levels last seen during the coronavirus era. reported a significant decrease. The world’s largest luxury conglomerate reported sales of 19.08 billion euros in the third quarter of 2024, down from 19.964 billion euros in the same period last year and from 21.26 billion euros in the second quarter. reported a 10% decrease. This is LVMH’s steepest quarterly decline since 2020.
The company faces an “uncertain economic and geopolitical environment,” making its annual growth forecast more cautious. Like Kering, LVMH is grappling with the effects of weak consumer spending in China, which has particularly hit sales of luxury fashion. It remains to be seen how LVMH will balance its global presence with pressure from slowing demand in China as the group navigates these challenges.
In stark contrast to Kering and LVMH, Hermès has maintained its growth trajectory. Benefiting from resilient and affluent customers, Hermès reported a 10% year-on-year increase in consolidated sales in the third quarter of 2024, reaching €3.7 billion. The brand’s business model is based on meticulous craftsmanship and strict inventory control, reinforcing its exclusivity. This strategy allows Hermès to weather market fluctuations better than its competitors, especially for iconic products such as handbags, which have high prices and long waiting lists.
Hermès’ unique positioning and carefully selected production methods protect it from fluctuations in the broader luxury market, particularly weak demand in China. This resilience sets Hermès apart and suggests that its business model may continue to drive steady growth even as other luxury brands face more unpredictable circumstances. Masu.
The global luxury goods market, valued at around 320 billion euros in 2021, has nearly doubled and could reach 600 billion euros by 2030, according to Luxonomy. This impressive forecast highlights the resilience and adaptability of luxury brands in meeting global demand for luxury goods.
However, despite these encouraging forecasts, growth is expected to slow in the short term due to difficult economic conditions. McKinsey predicts global luxury goods sales will grow only 3% to 5% in 2024, compared with 5% to 7% in 2023, as consumers cut back on spending following the post-pandemic surge. are.
The impact of this economic slowdown is likely to vary by region, with growth expected to slow in Europe and China. Meanwhile, the U.S. market could recover after a slump in 2023, adding some stability to global luxury goods sales. However, luxury brands that can adapt to changing consumer and regional trends will remain attractive investments in the long term.
For investors, focusing on companies that blend tradition and innovation could be key. Brands that adopt sustainable and ethical practices will better align with the expectations of increasingly environmentally conscious consumers. In this vein, companies like Hermès, which prioritize quality craftsmanship and exclusive, high-value products, are likely to continue to outperform even in challenging circumstances.
Technology also plays a pivotal role in driving growth, with digital tools such as artificial intelligence, metaverse, and mixed reality promising to transform customer experiences, enhance personalization, and streamline operations. These advances have the potential to strengthen customer loyalty and strengthen the exclusivity that characterizes the luxury sector.
At the end of the day, the luxury sector remains an attractive long-term investment, but success will depend on brands being agile in responding to both consumer demand and economic pressures. As investors evaluate France’s luxury brand giants, they consider market adaptability, sustainability, and other factors to determine which brands are best positioned to navigate the challenges and opportunities ahead. Factors such as engagement and strategic use of technology will be important.
Disclaimer
CFDs are complex products and come with a high risk of losing money quickly due to leverage. Between 66% and 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford the high risk of losing your money.
ActivTrades Corp is authorized and regulated by the Bahamas Securities Commission. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas (registration number 199667 B).
The information provided does not constitute investment research. This material is considered a marketing communication as it has not been prepared in accordance with legal requirements intended to promote the independence of investment research.
All information is created by ActivTrades (“AT”). This information does not include a record of AT prices or an offer or solicitation to trade in any financial instrument. No representations or warranties are made as to the accuracy or completeness of this information.
The material provided does not take into account the particular investment objectives or financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides execution-only services. Any person acting on the information provided therefore does so at his or her own risk.
