Second-quarter earnings season kicks off this week with the threat of US tariffs and multiple conflicts dashing hopes of a swift recovery for the luxury industry.
Sector bellwether LVMH is expected to report another decline in quarterly sales as momentum stalls at crucial brands, such as Louis Vuitton and Dior.
One luxury executive said many clients were favouring smaller, more “fashion forward” labels over big luxury names whose products had become both expensive and pervasive.
Price increases drove 80 per cent of industry sales growth between 2019 and 2023, according to McKinsey, with higher volumes only contributing 20 per cent.
Some notable rises include Louis Vuitton Speedy bags, which start at €1,650 (US$1,943; S$2,480) after doubling in price since 2019. A large Chanel flap bag, which retails at €11,100, has become more than 80 per cent more expensive over the same period. Some of the increases prompted a backlash from clients on social media.
“Just because top-tier clients can afford it doesn’t mean they don’t notice higher prices,” said the luxury executive. “Nobody wants to feel like they are being taken advantage of.”
Citi analyst Thomas Chauvet foresees multiyear “catch-up opportunities” for brands that had not raised prices so aggressively in the boom times, such as Hermes and Richemont’s jewellery brands Cartier, Buccellati and Van Cleef & Arpels.
That could prove to be an advantage if the US introduces sizeable tariffs on imports from the EU and Switzerland. The levies are set at a baseline of 10 per cent but could rise if negotiations break down.
Hermes, for instance, increased prices in May after saying it would offset the cost of additional US tariffs through price rises. Chauvet noted that other luxury companies, including Gucci and Bvlgari, have taken similar steps in the US.
LVMH is expected to report a 3 per cent decline in group organic sales in the second quarter, according to Visible Alpha consensus estimates. Sales at its dominant fashion and leather goods division — which houses top brands Louis Vuitton and Dior — are expected to have fallen by 6 per cent as geopolitical tensions eat into demand from wealthy clients.
