FRANCE, PARIS – JULY 15: Ralph Lauren boutique window in the 8th arrondissement of Paris. [+] People dressed as the U.S. Olympic Team wear in Paris, France on July 15, 2024. (Photo by Artur Widak/NurPhoto via Getty Images)
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Much of the attention in the luxury market has been on China’s economic slowdown, with most luxury brands reporting declining sales there, with the exception of Hermes.
But cracks are beginning to show in the U.S. luxury market, too: Latest reports suggest LVMH, Tapestry, Capri Holdings and Ralph Lauren are all experiencing slowdowns in North America, not as sharp as China’s, but still happening.
Bain reported that personal luxury sales in the Americas will slow quarter after quarter in 2023, falling 8% compared to 2022. Americans accounted for about 30% of revenue in the roughly $400 billion (€362 billion) personal luxury market last year, while Chinese consumers accounted for about 23%, so if U.S. consumers pull out, nearly all luxury brands would feel the pain.
The decline of luxury consumers in the US
“Despite moderating inflation, the U.S. luxury goods market continued its downward trend in the second quarter of 2024,” said Michael Gunther, head of insights at Consumer Edge (CE), which tracks more than 100 million credit and debit card payment accounts in the U.S. The company then slices and dice the data to uncover where people are buying and who is demographically driving them.
“Brands that are more reliant on higher-income shoppers are holding up, but higher-income spending is still declining, falling 5% in Q2 2024 to its lowest level since Q2 2020. And the gap between spending on brands that are overly reliant on higher-income consumers and those that are more reliant on lower-income consumers is narrowing compared to the same period last year, when spending on those brands fell 8%.”
CE Data lists about 50 brands that are over-indexed to the highest income earners (those earning over $150,000 a year) and a similar number that are over-indexed to lower-income consumers. Both groups are regulars, with established luxury brands like Louis Vuitton, Hermes, Gucci, and Chanel in the high-income bracket, and Coach, Ralph Lauren, Michael Kors, and Kate Spade in the low-income bracket.
Trends in the US luxury market: Reliance on high-income earners
Provided by Consumer Edge
“The biggest takeaway from the data is that weakness is growing,” he added. And that’s what the latest results from LVMH and Native American luxury brands Tapestry, Capri and Ralph Lauren make clear.
LVMH faces obstacles
Luxury industry leader LVMH is starting to feel the pain: On a consolidated basis, it reported a 1% drop in U.S. revenues in the first half of 2024, from $11.4 billion (€10.32 billion) to $11.3 billion (€10.26 billion). And last year, when consolidated revenues rose 9% to $95.1 billion (€86.2 billion), the U.S. rose just 1% to $24 billion (€21.8 billion).
LVMH’s fashion and leather goods division, which accounts for half of its consolidated revenue and is home to key brands such as Louis Vuitton, Dior, Celine, Fendi and Marc Jacobs, has been suffering from a slowdown in the United States.
US fashion and leather goods sales fell 8% to $3.7 billion (EUR 3.3 billion) from $4.0 billion (EUR 3.6 billion) in the first half. Overall, fashion and leather goods sales fell 2% worldwide in the first half of the year.
LVMH is having big problems across Asia ex-Japan. Consolidated sales in the first half of the year fell 13 percent, from $15.6 billion (€14.2 billion) to $13.6 billion (€12.4 billion). Asia ex-Japan is its largest market, accounting for 30 percent of sales, well above the United States, which accounts for 25 percent.
The company is hopeful that Olympic visitors will boost performance in France and the rest of Europe in the second half of the year. So far this year, France and the rest of Europe have accounted for 8% and 16% of consolidated revenues, respectively. France was up 3% in the first half of the year, while the rest of Europe was up 2%.
Japan also benefited from tourist numbers, which rose 28% in the first half of the year, but still accounted for just 9% of consolidated revenue.
Tapestry slows down
Tapestry’s fiscal fourth quarter, which ended June 29, was a disappointment, with revenue at the end of the year at $6.7 billion, flat from a year ago. Reported fourth-quarter revenue was down 2% to $1.6 billion.
Tapestry relies heavily on North America, which accounts for nearly two-thirds of its revenue, where revenue fell 1% in the fourth quarter and ended the year down 1%.
Shortages in Greater China were the biggest drag on Tapestry’s performance (flat for the year, down 13% in the fourth quarter), with the region generating just 15% of annual and quarterly revenue.
And roughly three-quarters of the company’s business comes from its Coach brand, which grew 4% for the year to $5 billion in sales before slowing to 2% growth in the fourth quarter.
Tapestry’s other brands are slipping. Kate Spade was down 6% in the quarter and for the year to $290 million and $1.3 billion, respectively. Stuart Weitzman fared even worse, down 19% in the quarter and 14% for the year, but the impact was minor, at $51 million for the quarter and $242 million for the year.
Tapestry said it expects year-end sales to be in line with last year’s, including in North America and Greater China, despite what it describes as a “challenging consumer environment.” The company’s guidance does not reflect its plans to buy Capri Holdings Inc., which has been blocked by the FTC.
Chief Executive Officer Joan Crevoiserat said on the earnings call that the delay was actually a blessing, giving the company more time to analyze and plan for integration. But while Capri’s latest results were both a disappointment and a surprise, she acknowledged that “it remains a great strategic fit and value creation opportunity.”
Capri was caught off guard.
Capri Holdings was hit hardest by the luxury goods slowdown. Revenues for the first quarter of 2025 (ended June 29) fell 13% to $1.1 billion from $1.2 billion in the same period last year. This was followed by an 8.4% drop in revenues to $1.2 billion in the fourth quarter of 2024 (ended March 30). Fiscal 2024 ended with revenues down 8% to $5.2 billion.
Weak performance in the Americas, which accounted for more than half of the company’s revenue last year, dragged down performance across all brands. Revenue in the Americas fell 13%, while Asia was flat and EMEA was down 3%. In the first quarter, the pain was spread across all markets, with the Americas down 9%, EMEA down 18% and Asia down 16%.
All three of Capri’s brands saw sales decline last year: Versace ended the year down 7% to $1 billion, Jimmy Choo was down 2% to $619 million and Michael Kors was down 8% to $3.5 billion.
And the pace of declines accelerated in the first quarter, with Versace down 15% to $219 million, Jimmy Choo down 6% to $173 million and Michael Kors down 13% to $675 million.
Michael Kors accounted for more than two-thirds of the company’s sales last year and 63% of its sales in the first quarter.
Particularly problematic for Capri is weak wholesale demand in the first quarter, which fell in the high teens while retail demand was down in the low double digits, according to TD Cowen. While wholesale only accounts for about 27% of sales, a decline in presale orders from retail partners indicates weak demand for the brand through the rest of the year.
According to a Consumer Edge study, U.S. luxury consumers are cutting spending the most at multi-brand retailers, both online and at specialty and department stores, compared to luxury brand DTC channels: multi-brand performance fell 15% in the second quarter, while single-brand DTC fell 10%.
Ralph Lauren struggles in the US
Ralph Lauren’s sales looked strong: Sales rose 1% to $1.5 billion in the first quarter through June, following a 2% increase to $1.6 billion in the fourth quarter through March.
Ralph Lauren will finish fiscal 2024 with $6.6 billion, up 3% from $6.4 billion in the prior year. The company expects fiscal 2025 revenue to grow in the range of 2% to 3%, with second-quarter results improving slightly to a 3% to 4% increase.
However, North American revenues fell 4% in the first quarter to $608 million, with North America accounting for 40% of total revenues, and the year just ended in which North America saw a 2% decline to $3 billion, accounting for 45% of total revenues.
Domestic wholesale had problems last year and fell 10% to $1 billion in fiscal 2024, while DTC retail increased 2% to $1.9 billion. In the first quarter, domestic wholesale was down 13% and DTC retail was up 1%.
However, DTC in North America was mixed, with store count growing 3% while digital commerce declined 4%. On this side of the Atlantic, Ralph Lauren has a much greater exposure in the discount outlet channel, operating 178 outlet stores compared to 50 full-price Ralph Lauren stores.
On a bright side, the company reported that rising DTC results in the first quarter were “more than offset by planned wholesale declines.” But the planned wholesale pullbacks to prioritize DTC growth turned out to be disastrous for Nike.
Planned or not, Ralph Lauren’s wholesale decline makes sense given CE’s weakness in its U.S. multibrand retail performance. But on a rolling basis, growth in the company’s North American DTC business has fallen from 2% in fiscal 2024 to 1% in the first quarter, which doesn’t signal confidence the company can overcome headwinds in the U.S. luxury market.
Declining spending habits
Over the past year, my firm, Affluent Consumer Research Company (ACRC), has tracked a month-over-month decline in affluent American consumers intending to spend more on luxury goods, while an increase in those planning to spend the same or less.
ACRC’s sample was focused on luxury brands’ primary target customers, i.e., those with an annual income of more than $250,000 and more than $1 million in investable assets, excluding the value of their primary residence.
While a third of those interviewed said they plan to spend more on luxury goods over the next 12 months, this cannot offset the 41% of wealthy people who plan to spend the same amount and the 35% who plan to spend less.
Wealthy Americans generally consider their financial situation stable, though nearly a quarter say their situation is worse now than it was three months ago in a June survey of 400 wealthy people. But they are less confident in the financial stability of the U.S. economy, with 44% saying their situation is worse now than it was three months ago.
And that’s reflected in their expectations for an upcoming economic downturn: Despite headlines saying the opposite, about 24% believe the economy has entered a recession, and 45% expect the economy to enter a recession within the next 12 months.
All of this is discouraging wealthy Americans from indulging in luxury items. “As people shop less frequently, their appetite for the broader concept of luxury is fading,” said Chandler Mount, a principal researcher at the ACRC, adding that more than half of the wealthy people surveyed said they rarely or only occasionally choose luxury items when shopping, and 10% never spend money on luxury items.
And he sees headwinds only getting worse as the year progresses: “Luxury spending is losing momentum. Next year could see a similar situation, or even worse.”
Advice for luxury brands in the U.S. market: Hope for the best, but prepare for the worst.
Note: LVMH, Tapestry, Capri Holdings and Ralph Lauren did not respond to requests for comment.
reference:
Forbes The $387 Billion Luxury Market Remains Unsettled. Here’s a Silver Lining. By Pamela N. Danziger
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