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Dive Overview:
The global luxury market is expected to continue to struggle through the rest of 2024, according to a new report from HSBC Global Research.
The analysts subtitled their new report “A Cruel Summer” and lowered their outlook for the industry’s organic growth in 2024 to 2.8% from their previous prediction of 5.5%. The new forecast is based on “several revisions to company forecasts in late July” as well as additional downward projections noted in the report, the analysts said.
In the report, HSBC cited retailers Burberry, Hermes, Kering, LVMH, Richemont, Swatch, Moncler and Prada. Analysts estimate that 2024 will be the sixth worst year for the luxury goods industry in the past two decades.
Dive Insights:
Some of the world’s top luxury companies have seen revenues fall this year. LVMH, Kering, Salvatore Ferragamo, Burberry and Lanvin Reported double-digit decline By various indicators Although there were some positive signs for the sector, such as sales growth in the first half of the year, Prada Group and Hermesthe entire luxury goods market is in a slump.
“Despite our lowered forecasts giving us a much easier basis for comparison, we no longer expect a return to double-digit growth in the third or fourth quarters of 2024,” the HSBC report said. “Our new forecasts factor in the weak macro environment and the flow of negative news about the sector that was received over the summer.”
The analysts said in the report that they expect average organic growth of 3% in the third quarter and 4% in the fourth quarter.
The report ranged from forecasting a 10% decline in Burberry’s third-quarter organic growth to a 21% increase in Prada’s retail business over the same period.The analysts said Q3 2023 was the lowest comparison base this year for the eight companies covered by HSBC, adding that “it would be natural to see a sharp acceleration in Q3 2024” compared to a 1% decline in Q2 2024.
“However, given what luxury industry peers have said about July and the very lackluster news flow they received over the summer, we believe Q3 should be their weakest quarter on a two-year rollover,” HSBC analysts said in a report. “The 3% average organic growth we expect for Q3 2024 is a mix of sharp declines (Gucci -18%, Burberry -10%) and good growth (Hermès +10%, Prada Group Retail +21%), so polarization should be stronger than ever.”
The report blamed the luxury industry’s struggles on slowing spending in China and the United States, and described luxury spending in Europe as “mixed.”
“European consumers are taking a wait-and-see approach. “Greedflation”: Many brands have been forced to raise prices since COVID-19. “This is not simply a reflection of inflationary pressures, but rather an attempt to eliminate them,” the report said.
Meanwhile, analysts said U.S. consumers, especially ambitious ones, “appear to be being priced out, or at least impacted by inflationary pressures and a high interest rate environment.”
Analysts also warned that Chinese consumers are “holding back on spending despite strong savings”.
In contrast, Japanese spending in this area “was very strong, driven by Chinese tourists, tourist flows from other Asian countries and some American tourists.”
Looking at next year, the analysts said they expect 7% growth in 2025, with “the weaker the base, the stronger the recovery” and therefore “a return to high single-digit growth as early as Q1 2025, and likely double-digit growth in Q2 2025.”
