When it comes to the luxury sector, there is never a shortage of headlines and shifts in consumer preferences. Depending on the outcomes of design releases and celebrity events endorsements or sightings, stocks can surge and sales can follow (It works outside the high fashion sector too – see Travis Kelce and American for example). And that can create headaches for investors trying to parse through the noise to find a longer term investment theme.
Luckily, this has not been the case of late. Recently, the differentiation in returns has been reflected in shifts in management and corporate initiatives. Kering, for example, has made several shareholder friendly moves. Meanwhile, the share performance of the rest is more indicative of the broad slowdown in the growth of luxury sales.
Some of the slump can be attributed directly to significant exposure to China. China luxury sales boomed for years alongside the economy. That has come to an abrupt end. A crackdown by the Chinese government on corruption and conspicuous luxury was certainly part of it. But that was followed by Covid and a real estate crisis that has lingered. That put luxury retailers who relied on the market for growth in a precarious position.
Not to mention, the rest of the world was also coming off a boom. After plummeting during COVID lockdowns, luxury good sales surged. And stayed elevated for quite some time. That came to an end over the past year as the price of goods generally slowed down. That makes sense. Consumers began to feel increasingly pinched by the compounding effects of inflation post-Covid era and pulled back. Luxury was not immune.
There are some signs of a nascent recovery. But that is an uneven statement for a reason. It does not simply take US consumer resilience to turnaround the fortunes of the luxury sector. For many, any sustained and significant comeback is reliant on the Chinese consumer coming back to the luxury market. And that has yet to seen in a meaningful way. At any rate, it bears watching as some appear to be turning a corner.