Author丨Gao Jianghong
Editor丨Luo Yifan
Source丨Xinhua News Agency
The disclosure of the annual report is not completely over, and the first quarter report of the new fiscal year has been released.
On April 25, Kering released its financial report for the first quarter of fiscal year 2024, with revenue of 4.5 billion euros in the first quarter, down 10% on a comparable basis, and revenue from its core brand Gucci (Gucci) of 2.1 billion euros, down 18% year-on-year. Kering expects recurring operating income to decline by 40%~45% in the first half of 2024.
This is not the only luxury conglomerate with declining performance.
Prior to this, some companies have announced their first-quarter financial reports. Among them, luxury goods giant LVMH Group recorded revenue of 20.7 billion euros, down 2% year-on-year, L'Oréal Group's sales increased by more than 8%, but North Asia became the only declining market, Italian luxury brand Brunello Cucinelli increased by nearly 18%, and Asia also performed well. In addition, the Italian brand Valentino has just warned that its full-year 2023 performance will also decline.
In addition to the earnings warning, the news of layoffs in many companies is also worrying, Lululemon, which has been hot in recent years, has laid off about 128 employees, and since the release of its 2023 annual report in March, its stock price has not shaken off the overall downward momentum, compared with the peak of the stock price at the beginning of this year, the market value has evaporated by more than $20 billion. Earlier, Canada Goose, another "middle-class harvester" with acceptable performance, also announced a 17% layoff in its workforce, causing the stock price to plummet.
Nearly a year after the magic curve turned into normal growth, is the decline of the luxury industry becoming more and more obvious?
Asian markets are uncertain
Compared with the historical results, the answers handed over by the companies in the Asian market this time are decent.
Among its peers, Kering's performance was the most worrying, with its forecast for a sharp 40% to 45% year-on-year decline in operating profit in the first half of the year. In its first quarterly report, the company noted that the group's retail sales in the Asia-Pacific region (excluding Japan) fell 19% year-on-year, with Gucci's performance in the Asia-Pacific region falling by 28%, and it is currently working to improve its brand image and strategy in the region. Kering's 2023 revenue fell 3% to 1.35 billion euros at constant exchange rates, and operating profit fell 18% to 99 million euros.
For LVMH, sales in Asia (excluding Japan) fell 6%, well below analysts' expectations. Japan's revenue surged by 32%, increasing its contribution to the Group from 7% to 9%, mainly due to the positive exchange rate, which saw a large number of Chinese consumers buying luxury goods in the Japanese market.
Jean-Jacques Guiony, chief financial officer of LVMH, said that demand for fashion and fur in China increased by nearly 10% in the first quarter, and LVMH also announced that it will reopen stores in Hong Kong's Times Square, opening a 12,000-square-foot strata store in Hong Kong, tentatively set for the end of 2024. However, the wine and spirits segment revenue fell by 16% as the global wine business continued to be affected by overall channel destocking, as the sales performance during the Chinese New Year period continued to be sluggish in 2023, with sales during the Chinese New Year period.
From the performance of L'Oréal Group, Europe and North America have achieved double-digit growth, but North Asia fell 1.1% year-on-year to 2.834 billion euros, L'Oréal explained that the North Asian market has improved month-on-month, but considering the year-on-year base and sales trends, the situation of travel retail continues to drag down its growth.
Unlike the two giants, Brunello Cucinelli's Asian market potential is significant, driven by revenue growth in China, Japan, South Korea and the Middle East, with a year-on-year increase of 16% to 86.14 million euros, accounting for 28% of total sales. In recent years, Brunello Cucinelli has continued to increase its investment in the Chinese market, and when announcing its 2022 annual report, the company said that it hopes to further expand the Chinese market in the future.
In the face of the unstable global economic environment, brands and companies are focusing on the Asian market, and the Chinese market is a top priority. Bain & Company said that with the further recovery of the economic environment and consumption, the fundamentals of the luxury market, especially in the Chinese market, remain strong.
According to PwC's recent "Chinese Mainland and Hong Kong Luxury Market Report", the global personal luxury goods market is recovering steadily, and is expected to reach US$464 billion by 2025, and is expected to grow to US$606 billion by 2030 at a compound annual growth rate of 6%. China's luxury market will continue to rise steadily under the benefits of Hainan's "customs closure policy", and it is expected that by 2030, China will replace the United States as the world's largest luxury market with a market size of US$148 billion. Previously, Luxe Digital even predicted that China will become the largest sales market for luxury goods by 2025, when 43% of luxury customers will come from China, far more than the 21% in the United States.
Luxury giants seek change
In terms of the industry, the Chinese market remains a key focus for companies and brands. In order to meet the recovery of the Chinese market, LV has previously laid out various airport stores and Haitang Bay in Sanya in advance, and also focused on high-end trunks and travel accessories at the commodity level, becoming the biggest luxury winner since the resumption of offline passenger traffic this year.
At the same time, as a leader in the luxury industry, LV also took the lead in "putting down its body", first holding a new Huanyou fashion show at the Long Museum in Shanghai, and then holding a see live broadcast on Xiaohongshu, inviting KOLs from various fields to comment on the 2024 Pre-Fall women's fashion show. During the live broadcast, LV also launched an online limited-time store for the first time, for viewers to watch and buy immediately or make an appointment to experience it in offline stores, warming up for new products to enter stores in May. In the end, the live broadcast was watched by 470,000 people, breaking the record of the luxury brand's Xiaohongshu live broadcast.
Under the dual effect of the iteration of consumption habits and macroeconomic pressures, luxury brands are using non-traditional ways to establish communication with the new generation of Chinese consumers. Long before the LV Xiaohongshu live show, Versace had already started the journey of selling goods on Douyin, Dior and Gucci also did live broadcasts of fashion week, and on Weibo, the opening screen advertisements and short videos of major brands can be seen everywhere. The expansion of the audience seems to contradict the mystical image that luxury brands have long portrayed, and the industry has mixed opinions about the impact of these practices on the brand's style. However, these measures ultimately point not to the growth of sales, but to the value output and mental education of consumer groups.
A series of actions made by luxury brands represented by LV are catering to the increasing demand of Chinese consumers for brand cultural interpretation, and brands such as Rolex and Omega, which are classified as hard luxury, have participated in Chinese social media live broadcasts at the watch fair, and even Hermes, which has never set up a spokesperson and has always been low-key, has entered Xiaohongshu this year, and the change has quietly taken place.
In addition, Hermès, an honor student with stable grades, joined the change and challenged the dominance of the LVMH group in the industry. A few days ago, Citigroup analyst Thomas Chauvet said that Hermes is currently one of the most predictable companies in the luxury industry in terms of growth, profit and cash flow, and the company has the potential to surpass LV in the next few years to become the largest brand in the luxury industry in terms of turnover. Specifically, Hermès' sales could reach a "symbolic" 20 billion euros by 2027 or earlier, which happens to be a sales milestone for LV to complete in 2022.
Before the release of the earnings report on April 23, Kering closed at 350.20 euros per share, up 1.13%, but Kering's share price has fallen more than 20% so far this year. On April 25, Hermès will release its first quarter results report for this fiscal year, who will take the lead in the first half of 2024 in the step-by-step adjustment?
SFC
Editor: Li Yutong, intern: Dong Danlin
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