Why declining sales of luxury goods could be an ominous sign

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Concerns about an economic recession are growing as quarterly results are released. But a growing number of analysts argue that this is not a general economic recession, but rather a soft landing. One potential slowdown is in luxury goods, which bodes ill for consumer confidence and the strength of this category.

Luxury giant LVMH, which owns 75 luxury brands including Louis Vuitton, Christian Dior, Fendi, Veuve Clicquot, Moët & Chandon and Hennessy, reported disappointing quarterly results last week, according to a senior Forbes contributor. writes Pamela Danziger. Organic growth for the group as a whole was just 3%, similar to the slow growth seen in the previous two quarters, but well below the 14% revenue growth in 2023. Compared to a year ago, fashion and leather goods revenue was down 5%. Wine and spirits fell 7%. The decline has been particularly pronounced in China, which previously accounted for 50% of LVMH’s growth. Sales in Asia excluding Japan decreased 16%.

Bain says the luxury goods market has existed for hundreds of years, and many brands have weathered geopolitical upheaval and economic turmoil, but the overall market fell 8% during the Great Recession. And with inflation falling and the prices average people paying for quality goods and services on a daily basis trending downward (slowly), what difference could a potential luxury recession make to the economy as a whole? Will it bring about this?

Unlike many consumer goods, luxury goods tend to have strong sales across a variety of economic conditions. People buy luxury goods for their status and quality. If high-end consumers’ trust in these brands is waning and they are spending less, it means the economic uncertainty that has permeated the past two years is finally reaching top-level consumers. There is a possibility that “The decline in quarterly sales for LVMH’s fashion and leather goods division is too large to ignore,” Barossini Volpe, a professor at Italy’s ISTUD business school, told Danziger. Volpe predicted overall negative growth in the personal luxury goods sector this year and next.

To regain growth, luxury companies will need to do some of the things everyday consumer brands would do in this type of situation. That means innovating, proving their worth, and maybe even lowering prices. Danziger wrote that LVMH, along with many other companies, raised prices. Some analysts believe it may be causing consumer churn. And those keeping an eye on the broader economy should be forewarned that even high-income consumers are taking note.

human capital

More than a month later, the Boeing strike may be coming to an end. With negotiation assistance from Acting U.S. Secretary of Labor Julie Su, the aerospace company has reached a tentative agreement with the International Association of Machinists and the Aerospace Workers Union. More than 30,000 striking workers are scheduled to vote on the deal on Wednesday. The main issues in the strike, which essentially crippled both Boeing’s production capacity and finances, include demands for raises and reinstatement of the company’s pension plan. The proposal to the union reportedly includes a 35% wage increase over four years, increased 401(k) contributions and a $7,000 ratification bonus.

Forbes senior contributor Jim Osman writes that Boeing’s proposed 35% pay increase signals a major shift in the labor market. Employees are demanding much higher wages, not only to contain the rising cost of living, but also to reward their knowledge and contribution to the company. Meanwhile, companies need to retain their talent, and as Boeing’s contract offer shows, many are trying to do just that. Companies need to budget raises now, Osman writes. Retaining talented employees is becoming increasingly important. And companies that may not have the capital to invest more in their employees (Osman said, given Boeing’s other major equipment and legal issues this year, may even be able to afford this contract offer) (writes that it is not clear) should invest less. Strong company culture, educational opportunities, and high-value employee benefits such as flexibility. You also need to figure out the best way to explain all of this to shareholders and investors who may initially want to direct these funds elsewhere.

stock market news

High-tech stocks, especially AI-related companies, continue to rise. Nvidia continued its rise in October and now trails Apple as the second most valuable company by market capitalization. Nvidia’s market capitalization currently stands at $3.525 trillion, but Bank of America analysts say Nvidia still has a lot of growth potential, with the total addressable market for generative AI technology expected to rise by the end of the year. It is predicted to grow to $363 billion by 2020, a staggering increase from $45 billion in 2023. Market size. Nvidia currently has a 75% market share, and a new report estimates that the company’s market capitalization could reach $4.7 trillion. As Nvidia’s stock continues to rise, CEO Jensen Huang, the company’s largest shareholder, was named to Forbes magazine’s top 10 billionaires for the first time on Monday.

Last Tuesday, Apple’s stock price soared to an all-time high, briefly valuing the tech company at $3.61 trillion. Perhaps the trigger was the announcement of a new iPad Mini model, the first update since 2021. Rounding out Apple’s bullish week was Friday’s data showing iPhone 16 sales in China exceeded expectations. Sales of the new phone are 20% higher than the iPhone 15, according to data from research firm Counterpoint. More big changes are expected as Apple rolls out Apple Intelligence and is expected to report earnings later this month.

Featured news

United Airlines reported quarterly results last week that beat expectations. The company also announced a $1.5 billion stock buyback, which pleased investors but angered labor unions. Ted Reed, a senior contributor at Forbes magazine, wrote that United Airlines decided to buyback its stock because profits are growing and the airline is looking to invest and deleverage its business. There is. Wall Street and analysts praised the news, and the stock has risen more than 15% since the announcement.

The Flight Attendants Association, which represents 25,000 United Airlines employees, is negotiating contracts with the airline and has previously voted to authorize a strike, but there are still issues on the agenda. He said the move was a “big mistake.” AFA President Sarah Nelson and United AFA President Ken Diaz said in a joint statement: “The money that United has promised to Wall Street has been at the forefront throughout this pandemic and during this difficult recovery for all of us. It belongs to the flight attendant who worked there.”

deep dive

How to get almost unlimited funds to build your small business empire now

Thanks to an often overlooked rule change regarding Small Business Administration 7(a) loans, business owners can now receive federal loans of up to $5 million or more as long as they are diversified. The program’s May 2023 amendments make it popular with small business buyers due to its generous collateral requirements, low down payments, long repayment terms, and 75% SBA guarantee, and the program’s May 2023 amendments make it a favorite among small business buyers and individuals or It says that organizations will be able to receive multiple loans. The rule, which previously had a maximum loan limit of $5 million per owner, now allows $5 million per business only if it falls within a different subsector of the North American Industry Classification System.

SBA officials told Kochidin that the change was made “to reflect the definition of small business in the Small Business Act.” The law partially stipulates that small and medium-sized enterprises are independently owned and operated and are not dominant in their field of business. But the larger impact brought about major changes. The agency told Kochikodin that this is not a backdoor way for Congress to provide more support to successful entrepreneurs without raising loan limits. The SBA has been talking to borrowers and lenders about the program for more than a decade and found previous policies to be “too burdensome, confusing and subjective.” The new rules simplify the definition of affiliation while maintaining “protections to prevent large businesses from pursuing SBA loans,” officials said.

Some in the small business community are happy about this change, noting that many of today’s successful entrepreneurs are interested in acquiring and improving existing businesses. But lawyer Eric Pacifici, founder of small business firm SMB Law Group, says that when entrepreneurs are looking to expand, diversifying into different types of businesses is the best strategy for success. He said it may not be the case.

facts and comments

Streaming giant Netflix reported results last week that beat Wall Street expectations for both profits and revenue, but subscriber growth has begun to slow.

$9.8 billion: Total revenue for the third quarter, representing 15% year-over-year growth

5.1 million new paid subscribers in the third quarter, down from 8 million in the second quarter

“We feel very good about the business,” co-CEO Ted Sarandos said on an earnings call.

Strategy + Advice

CFOs don’t have to stick to one industry. Here are some stories of CFOs who have bounced around, bringing diverse experience to new fields.

It’s common to feel anxious about public speaking, and former President Barack Obama’s speechwriters also felt anxious. Here are some tips for feeling confident when speaking in groups.

video

quiz

Why are tax professionals so outraged by Intuit’s latest ad campaign?

A. Contains incorrect information about the Income Tax Act.

B. Intuit was insulted by encouraging customers to “break up” with their tax professionals.

C. They believe that accountancy seems like a boring career choice, which will further exacerbate the accountant shortage.

D. A low price guarantee can impact a tax professional’s business.

Please check if your answer is correct here.