The luxury goods industry is counting on a buoyant U.S. market to fuel growth in 2025 after a challenging year for the industry, which is still suffering from a decline in Chinese shoppers.
Last week, Richemont, owner of elite jeweler Cartier, saw its stock rise on optimism after better-than-expected results for its most recent quarter. With this, industry leader LVMH regained its crown as Europe’s most valuable company on Friday.
“We’re bullish on the U.S.,” said Gemma D’Auria, a senior partner at consultancy McKinsey & Co., as LVMH and other companies prepare to report their annual results starting next week. . . This has always been an important market for luxury goods, but now it has become even more important due to China’s economic slowdown. ”
He predicted the next few months would “continue to be very volatile” for the industry, but expected things to improve later this year.
Industry executives will be looking to get through a difficult 2024. High demand for products ranging from designer handbags and luxury fashion to premium alcohol has led the sector to grow at a compound annual rate of 5% from 2019 to 2023, with profits nearly tripling, according to McKinsey. That’s what it means.
However, while the industry could count on growth in both the US and China during this period, growth in both slowed for the first time last year. According to McKinsey, this marks the first year since 2016 where growth in luxury goods has declined, excluding the onset of the pandemic.
It expects growth in luxury goods to slow to 1% to 3% annually from 2024 to 2027.
“After a tough 2024, we expect the luxury industry to see some recovery in 2025,” Barclays analyst Carol Maggio said. Richemont’s results brought “some hope” to the industry, he added, but “we wouldn’t expect such a huge acceleration across the board, including at LVMH.”
Luxury shopping in China is expected to remain weak as the housing crisis and weak stock market negatively impact consumer confidence. Even Richemont saw sales in its massive China market drop 18% on a like-for-like basis in an otherwise blockbuster quarter.
But the strength of the U.S. economy and the post-election boom following Donald Trump’s reelection as president should benefit the luxury goods industry in its largest market this quarter and throughout the year.
Although most luxury goods executives do not expect their industry to be targeted, it is possible that President Trump will follow through on his threat to impose tariffs on products from outside the United States.
The diverging fortunes between luxury goods giants such as Richemont, LVMH and Hermès come as the sector adjusts to weaker growth this year against weaker competitors such as Gucci and Yves Saint Laurent owner Kering and Burberry. is expected to expand further.
Analysts say brands such as Richemont, Hermès and Chanel are expected to continue to benefit from sales to ultra-wealthy customers, compared with brands that have a large following among aspiring middle class customers.
LVMH, the standard-bearer in the 350 billion euro industry that owns brands such as Dior and Louis Vuitton, is the luxury company with the greatest exposure to the high-performing U.S. market, according to HSBC.
Analysts expect sales for the last three months of the year to be no worse than the previous quarter, which will be announced on Jan. 28, but still down from a year ago.
Barclays expects the group’s organic growth to fall 2% year-on-year in the quarter, while the Bloomberg consensus expects its closely watched core fashion and leather goods division to decline 3%. There is.
“Not getting worse is a good start to getting better,” said Erwan Lambourg, global head of consumer and retail equity research at HSBC.
Another big change the industry will have to overcome this year is that it can no longer rely heavily on rising prices to maintain growth and profit margins.
According to McKinsey, more than 80% of sales growth from 2019 to 2023 was due to price increases, which Dauria called “one of the industry’s self-inflicted predicaments.”
“Aspiring high-end customers have effectively been priced out,” she says. “There is very limited product and experience innovation with these price increases.”
Recommended
Analysts say that for brands like Dior, which have relied heavily on pricing, that lever will no longer work to the same extent. Other companies, such as Hermès, where price increases are more gradual, may have more leeway.
Jean-Philippe Bertie, managing director of fund manager Fontbel, said: “Richemont, for example, has raised prices very conscientiously, but some other brands have actually exaggerated their price increases after COVID-19. I did,” he said.
“Clients aren’t stupid. They know exactly what value for money looks like.”
As the industry seeks new sources of revenue, experts say rapid growth in emerging markets such as the Middle East and India can fully offset the single-digit growth expected in core regions such as China and Europe. I didn’t expect that.
Enrico Massaro, Barclays’ head of consumer and retail investment banking in EMEA, said U.S. growth therefore remained “very important”. “This industry really relies on that.”
“This is a year of transition, starting with a tough 2024 and ending with a more normalized 2026. And 2025 will take us there.”
