The luxury sector is again posting strongly rising results for the third quarter of 2022. But the industry is concerned about 2023, where inflation and the energy crisis could slow growth.
Thanks to a clientele that was little affected by inflation, luxury goods companies such as LVMH, Kering and Hermès posted double-digit sales growth in the third quarter, defying pandemic-related declines in China, one of their main markets, and rising costs around the world.
“The only thing I would say is that luxury goods are not an indicator of the broader economy,” LVMH finance director Jean-Jacques Guiony said at a conference with analysts. We sell to clients who are more sensitive to shocks – property values, the stock market and so on – than changes in GDP.”
The world’s largest luxury goods manufacturer posted sales of 19.75 billion euros in the third quarter, which corresponds to a currency-adjusted increase of 19 percent. “Luxury goods are not immune to recessions or shocks (…) [aber] unlike other industries, we have the ability to pass costs on to our customers when inflation is significant in our business, which is currently not the case,” Guiony added.
The strongest brands like Louis Vuitton have nevertheless increased their retail prices by 2.5 times inflation, according to bank UBS. For 2023, Hermès expects “a price increase of between five and ten percent, compared to four percent this year and two percent in previous years,” said Chief Financial Officer Eric du Halgouët. The company currently sees no signs of a downturn across all markets, according to the finance director.
“We have to be patient”
“The fall is ahead of us,” Arnaud Cadart, portfolio manager at Flornoy, told AFP. In the US, where inflation is lingering and President Joe Biden is warning of a possible recession, “customers will shrink very significantly or even go into the red.” European sales will also fall, he warns. Europe and the US account for 40 percent of global consumption of luxury goods, according to Cadart.
“Luxury goods are not immune to the recession,” agrees HSBC, which expects growth to slow in the fourth quarter of this year and into next year. UBS also expects inflation and the cost of living crisis to hit consumers harder, and the luxury goods clientele may not be spared.
However, China could be the salvation for the luxury goods sector, with sales picking up in 2023 after lockdown-hit 2022, analysts at HSBC say. The analysis also predicts that brands are better prepared for the recession this time than they were in 2008-2009, as they know their consumers better and have focused heavily on their local clientele over the past two years.
“We have a very solid portfolio to look forward to next year regardless of the economy,” said Jean-Marc Duplaix, Kering CFO in a conference call with the press. “There are factors that may weigh on demand in the short or medium term , the long-term prospects for our industry remain rock solid, there is an appetite for our products and our brands across geographies.”
Competitor LVMH has the same patience and long-term vision.
“Certainly the group is a good size. Globally, in the US, it’s still modest compared to the big listed companies, we’re about twentieth, we’re not in the top five, we can still improve,” Bernard Arnault said recently on Radio Classique. “We must be patient, there is no rush,” he said in conclusion. (AFP)
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This article was similarly published on FashionUnited.fr. Translation and editing: Barbara Russ