Luxury slump deepens: LVMH and Kering hit by price fatigue and tariff fears
The results, kicking off with LVMH today, will likely show that any revival in demand for pricey fashion in the key US and Chinese markets remains elusive.
Uncertainty unleashed by US President Donald Trump's trade war has caused volatility in stock markets, weighing on consumer confidence.
Trump's threat of 30 per cent tariffs on imported EU goods risks hurting luxury houses that make products in France and Italy. They will be wary of lifting prices for US consumers after signs that previous rounds of price hikes slowed demand.
'The level of price increases has been too much' at a number of brands, alienating the 'aspirational' middle-income shoppers, said Caroline Reyl, head of premium brands at Pictet Asset Management.
LVMH's fashion and leather goods division, home to Louis Vuitton and Dior, is expected to show sales down 6 per cent year-on-year, its fourth consecutive quarterly decline, according to a Visible Alpha consensus forecast.
Gucci, Kering's main earner which is undergoing an overhaul, has struggled for twice as long and is seen reporting sales down nearly a quarter from a year earlier.
After two years of slowing sales, unease about the health of the industry is growing, with customers balking at higher price tags.
Shares of LVMH are down nearly 27 per cent since the start of this year, while shares of Kering are down 15 per cent. Shares of Hermes and Richemont, which cater to mostly wealthy clients, were little changed, with the former down 0.9 per cent and the latter up 1.6 per cent over the same period.
LVMH, Europe's most valuable listed company as recently as January, has slipped to fifth place.
'It seems that investors are starting to worry about the long-term structural attractiveness of the industry,' UBS analysts said last week.
Sales of handbags — previously a growth engine — have been weak as shoppers opt for timeless, investment-grade jewellery.
Brands including Dior, Gucci and Chanel have recruited new designers, but it takes time for fresh styles to enter stores.
Lower-priced products
Brands like Louis Vuitton and Prada 1913.F are offering more products below US$1,000, like a new hybrid ballerina-sneaker shoe, for example, and emphasising beauty products, said Bain consultants.
But that carries risks.
'The aspirational skew of the brand is unhelpful currently,' said HSBC analysts, highlighting problems at Louis Vuitton. 'Some inconsistencies, we feel, are likely starting to have consumers wonder.'
Consensus forecasts peg organic sales of LVMH down 3 per cent, while Kering is seen down 13 per cent; Hermes and Prada are expected to show a 10 per cent rise, as Prada's Miu Miu label takes market share from rivals.
Kering will report its results on July 29, while Hermes and Prada are due to report on July 30. — Reuters
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