Luxury’s about-turn

«The luxury market appears to be guided by cautious and conservative projections, compared to those forecasted earlier this year», managing director & senior partner Filippo Bianchi and strategy consultant Lucia Casagranda of Bcg-Boston consulting group said, along with other industry experts who participated in this MFF survey on fashion and luxury predictions for 2023/2024. Until a few months ago, growth estimates stood at +7-9% compared to 2022. They are currently predicting a 4-6% rise in value compared to 2022, which may result in adverse volume patterns for various brand, country, and product category blends. «This is an unprecedented occurrence, aside from the pandemic period».

According to Bcg experts, various factors caused the downward revision of estimates. The stagnant North American market (which makes up 20% of the total, ed.) throughout the year and the slower-than-anticipated recovery in China negatively impacted the outlook. Forecasts for economic indicators such as Gdp were below expectations, while inflation rose. «The rise has had a significant impact on the segment of the market made up of aspirational consumers, who comprise 60% of the luxury market population», they explained. Based on their previous statements, they predict a growing market in 2024, but one without any significant momentum. «We expect a linear, single-digit increase of approximately 5-7%, primarily resulting from price effects rather than volume», they concluded. The recent financial reports of major luxury industry players like Lvmh, the performance of their respective stock markets, and the lackluster debut of Birkenstock’s ipo (see MFF of november 8) indicate a slowdown in the sector. Claudia Lotti, the senior managing director of Fti consulting, explained that this is mainly due to decelerated growth in China and the US, which had been the primary drivers of post-Covid-19 luxury recovery. Domestic situations have had a significant impact on these markets, with both US and European inflation data holding steady at high levels. «The growth of the ‘daigou’ or gray market in China, which surpassed a value of 80 billion dollars and recorded a 40% increase from 2019, poses a significant challenge to luxury brands operating there. This trend is also indicative of a general slowdown in the region, with consumers exhibiting greater caution», she explained. The sustained growth rate of luxury brands following the pandemic appears difficult to maintain over time. Lotti explained that the decline can be attributed primarily to two macro effects. First, reduce demand from the upper-middle class (the aspirational consumers, ed.), which played a significant role in the post-Covid-19 “euphoria” but have witnessed a decline in purchasing power due to persistent inflation and unchanging interest rates in the past year. Second, the double-digit price hikes by popular brands in recent years are leveling off. The rising cost of living and decreased purchasing power have led to stagnation in the industry. A survey conducted by the Capgemini research institute this year revealed that 69% of consumers worldwide intend to postpone their luxury goods purchases. «The current geopolitical environment and persistent uncertainty surrounding the economic implications of the Hamas-Israel conflict, as well as the potential impact of regional expansion of the war, could impact the luxury market», Lotti noted. Nonetheless, there is considerable anticipation for the last quarter’s trends, where consumer sentiment will be reflected in sales during the holiday season, from Black Friday to Christmas. «We anticipate results consistent with the previous quarter and anticipate declines in certain areas of the sector to persist through the first part of 2024», she concluded. Finally, Luca Solca, senior research analyst global luxury goods at Bernstein, remarked: «Market feedback suggests something has changed, particularly regarding European consumer spending». Since midyear, these expenditures have been more cautious, transitioning from growth to year-over-year decline. «I expect the fourth quarter to be in line with the third, as US consumers remain resilient and Chinese consumers continue their blossoming growth. It is worth noting that the compensation comparison will be easier than last year». (All rights reserved)