This earnings season is expected to draw a sharp dividing line in the European luxury sector, with giants such as LVMH and Kering expected to report further quarterly declines. The news has raised deep concerns among investors about a prolonged downturn, after the sector has lost about 175 billion euros ($205 billion) in market capitalization since the start of the year.
LVMH is a case in point. Once Europe’s largest company by market capitalization in January, it has now fallen to fifth place. In that context, the financial reports are not just numbers, but also a verdict that the gap between winners and losers in the $400 billion industry is widening.
Global fatigue and the price of pride
The headache for Paris executives stems from two key markets: China and the United States. At opposite ends of the globe, demand for luxury goods shows no clear signs of recovery. In China, a slowing economy has dampened the post-pandemic shopping frenzy. In the United States, the uncertainty of President Donald Trump’s trade war continues to simmer, sapping consumer confidence.
In particular, the threat of tariffs of up to 30% on European goods hangs like a sword of Damocles over the heads of French and Italian brands, forcing them to accept eroded profit margins or continue to raise prices, a move that is already being blamed for driving away customers.
Caroline Reyl, senior brand manager at Pictet Asset Management, bluntly commented: “Many brands have increased their prices so much that the middle-class customer group, who once aspired to own branded goods, has started to turn away.”
That’s the price of arrogance. After years of skyrocketing prices, luxury brands seem to have reached the limit of tolerance for a key group of customers: those who buy their goods to assert their status, not because they have the financial wherewithal.
The consequences are clear in the forecasts. Revenue from LVMH’s fashion and leather goods division, the “golden goose” that houses Louis Vuitton and Dior, is expected to fall 6-7.8% in the second quarter, marking the fourth consecutive quarter of decline. The situation is even worse for Gucci, the flagship brand of the Kering group. In the midst of a painful restructuring, Gucci has endured a double-digit decline and is expected to see its revenue this quarter “evaporate” nearly 25% compared to the same period last year.
“It appears that investors are starting to question the long-term structural appeal of luxury,” analysts at UBS wrote. That skepticism is well-founded.
Luxury giants are preparing to announce their second-quarter business results amid increasingly gloomy market expectations (Illustration: BOF).
The fierce division: The story of two extremes LVMH and Hermès
Although the luxury industry is struggling, it is impossible to generalize. In fact, a silent "blood change" is taking place, clearly differentiating between the brands that are standing firm and those that are falling behind.
“It’s no longer a case of a rising tide lifting all boats,” said Stefan-Guenter Bauknecht, senior category director at DWS. “It’s all about the individual product lines and how each brand positions itself in the eyes of consumers.”
There is no better example of this divergence than the story of two French giants: LVMH and Hermès International SCA.
While LVMH's fashion division is forecast to decline by 7.8%, Hermès - a shining example of profitability from ultra-luxury goods - is forecast to grow spectacularly by 12% in its leather goods division.
LVMH shares have lost about half their value over the past two years, while Hermès shares have held up remarkably well amid the storm. After rising 160% since the end of 2020, Hermès shares are almost flat this year, a remarkable feat compared to the broader luxury index’s 7% decline.
The secret? Hermès and other ultra-luxury brands like Richemont (owner of Cartier) do not cater to an “aspirational clientele.” They cater to the super-rich, immune to normal economic cycles. For these customers, a Birkin bag or a Cartier watch is not a luxury item, but an investment, a symbolic asset. They have something every business desires: pricing power.
“ In the current economic climate, only brands that can control their prices will survive,” said Helen Jewell, BlackRock’s chief investment officer for Europe, the Middle East and Africa.
That is also the reason why Hermès can still comfortably increase prices without worrying about losing customers because their products are both rare and iconic, and the waiting list is always long.
On the contrary, Louis Vuitton is in a difficult position: if it continues to increase prices, it will lose middle-class customers, while reducing prices or launching low-cost products will easily dilute the high-end image it has worked so hard to build.
Risky Strategy: When Louis Vuitton Tries to "Salvage" with Cheap Products
To counter the situation, some brands such as Louis Vuitton and Prada are adopting a new strategy: launching more products priced below $1,000, such as sneaker-like shoes or expanding their cosmetics lines. The goal is to attract a wider customer base, making up for the decline in the luxury segment.
However, this is a risky double-edged sword. “The brand’s over-reliance on a luxury, high-end image is becoming a disadvantage at this stage,” warned HSBC analysts, pointing to “signs of inconsistency” at Louis Vuitton that are making consumers suspicious.
When a brand known for its trunks and handbags that cost tens of thousands of dollars suddenly focuses on promoting “affordable” items, it risks diluting the image of exclusivity and luxury that it has worked so hard to build. This dilution can scare away the very loyal, high-end customers who seek out the brand for its exclusivity.
Aiming at the under $1,000 segment, "big guys" like Louis Vuitton and Prada trade luxury to retain customers (Photo: Getty).
Lessons from Burberry's revival and the future of selection
Amidst the contrast, there are surprising bright spots, showing that the right strategy can still create miracles. Burberry is one example. Once a struggling brand, the British fashion house's shares have risen more than 30% this year. They have succeeded thanks to an effective restructuring plan and a smart strategy of focusing on their core strength: outerwear, attracting both old and new customers.
The stories of Burberry, Hermès and LVMH show that the luxury industry has entered a new era - the era of selection. The boom of 2021-2023, when investors could "buy a basket" of luxury stocks and expect profits, is over forever.
Investors now have to be “extremely selective,” says BlackRock’s Jewell. The market will reward brands that can “retain” consumers through authentic value, unshakeable pricing power, and a clear business strategy. Those that can’t will be left behind.
The luxury sector still faces many challenges ahead. With stock valuations much higher than the average, many investors remain cautious. “This is a sector that is very vulnerable to risks such as tariffs and exchange rate fluctuations,” warned Roland Kaloyan, an expert at Societe Generale.
The market is changing and brands can no longer afford to be complacent. As consumers become more cautious about their spending, only those who maintain their own identity and understand what makes “luxury” truly valuable will be able to go the long haul.
Source: https://dantri.com.vn/kinh-doanh/nganh-hang-xa-xi-toan-cau-khon-don-ong-lon-lao-dao-ke-song-sot-la-ai-20250723170040049.htm
Comment (0)