Richmont gave the luxury sector some unexpected good news earlier this month, reporting a surprisingly strong increase in fourth-quarter sales, including solid business in the U.S. and Europe and not too much prospects in China. On Friday, Burberry also reported unexpected results, including a significant increase in U.S. business.
LVMH’s fourth-quarter earnings, released Wednesday, will either confirm that a Luxury rebound is underway or expose Richemont and Burberry as exceptions that prove the rule. Investors are betting on the former. LVMH shares rose 14% to a nearly six-month high after Richemont’s results.
There are solid grounds for optimism. The drivers behind Richmont and Burberry’s results were similar – declining sluggishness in China and decent demand elsewhere. The recovery at Burberry in particular is on track as the brand was among the most challenged last year when consumers around the world began to ease their luxury spending last year.
A more cautious view would think that Burberry partially achieved that sales bump by cutting prices during the holidays. Even though it reported strong earnings, Burberry executives were careful not to end the luxury sector’s troubles. Also, the key drivers behind Richmont and Burberry’s success (jewelry and outerwear, respectively) are not LVMH’s biggest brand strength, relying heavily on handbags to drive sales and profits. That category has been one of the worst affected by the luxury recession, and it will be difficult to convince consumers that these items are worth the high prices. Whether a backlash against higher prices (Dior in particular has become more aggressive in hiking the cost of its bags) and a general lack of excitement around major brands has given way to more positive consumer sentiment is still unknown.
Even if LVMH’s results are underwhelming, there are plenty of opportunities to change the narrative. The new year of the month begins on January 29th, and China has added additional holidays to boost consumer spending. In Paris, the couture shows begin on January 27th, with a packed schedule of award shows and other red carpet events. wildfires may reduce the appearance of the event). Louis Vuitton has a busy schedule of activations, marking the 20th anniversary of the highly bankable Murakami collaboration. And of course, there’s the next stage of designer reshuffling. This could include Jonathan Anderson moving into Dior’s top creative job, if the rumor mill is to be believed.
We hope to hear from you in the coming weeks! Send tips, suggestions, complaints and compliments to Brian.baskin@businessoffashion.com.
