The luxury industry is looking to the buoyant US market to spur growth in 2025 after a testing year for the sector, which is still grappling with the retrenchment of Chinese shoppers.
Last week, Richemont, owner of elite jeweller Cartier, beat expectations for its most recent quarter, spurring optimism and sending shares higher. This helped industry leader LVMH reclaim its crown on Friday as Europe’s most valuable company.
As LVMH and others prepare to report annual results starting next week, Gemma D’Auria, a senior partner at consultancy McKinsey, said she was “bullish on the US . . . which has always been an important market [for] luxury, but even more so now because of the slowdown in China”.
She predicted that the next few months would “continue to be quite choppy” for the industry, although she expected improvements later in the year.
Industry executives will be keen to put a difficult 2024 behind them. High demand for a range of goods — from designer handbags and high-end fashion to premium alcohol — spurred the sector to a compound annual growth of 5 per cent from 2019 to 2023, as profits nearly tripled, according to McKinsey.
But where the industry could count on growth in both the US and China during that period, last year was the first time that both had been muted. This produced the first year since 2016 — with the exception of the onset of the pandemic — that luxury growth fell, according to McKinsey.
It expects luxury growth to slow to between 1 and 3 per cent annual growth between 2024 and 2027.
“We do expect to see a small rebound of the luxury space in 2025 after a challenging 2024,” said Carole Madjo, analyst at Barclays. The Richemont results had offered “some hope” for the industry, she added, but “we would not expect such a strong acceleration across the board, including at LVMH”.
Chinese luxury shopping is expected to remain subdued as its housing crisis and poor stock market performance drag on consumer confidence. Even at Richemont, greater China sales were down 18 per cent on a like-for-like basis in its otherwise blockbuster quarter.
But the strength of the US economy and a post-election bump that has followed Donald Trump’s re-election as president is set to benefit luxury in its biggest market this quarter and throughout the year.
There is a risk that Trump could make good on his threat to impose tariffs on goods from outside the US, though most luxury executives do not expect the industry will be targeted.
The divergence in fortunes between luxury’s strongest participants, such as Richemont, LVMH and Hermès, is expected to widen further this year as the sector adapts to lower growth against weaker competitors such as Kering, owner of Gucci and Yves Saint Laurent, and Burberry.
The likes of Richemont, Hermès and Chanel are expected to continue to benefit from sales to their ultra-wealthy clients, according to analysts, compared with brands with more of a following among the aspirational middle classes.
LVMH, the €350bn industry bellwether that owns brands including Dior and Louis Vuitton, is the luxury company with the biggest exposure to the better-performing US market, according to HSBC.
Analysts forecast that sales will not have deteriorated in the final three months of the year compared with the quarter before when it reports on January 28, while still being down year on year.
Barclays expects group organic growth in the quarter to be down 2 per cent year on year, while Bloomberg consensus expects its closely watched core fashion and leather goods division to be down 3 per cent.
“Not getting worse is a good start to getting better,” wrote Erwan Rambourg, global head of consumer and retail equity research at HSBC.
Another big change the industry will have to navigate this year is no longer being able to rely so heavily on price increases for growth and to maintain margins.
Pricing increases accounted for more than 80 per cent of sales growth between 2019 and 2023, according to McKinsey, which D’Auria called “one of the industry’s self-inflicted woes”.
“Aspirational luxury customers have de facto been priced out,” she said. “There has been very limited innovation in product and experience in line with these price increases.”
For brands such as Dior that relied heavily on pricing, that lever will no longer work to the same degree, analysts say. For others such as Hermès, where price increases have been more moderate, there will be more leeway.
“Richemont, for example, has raised prices very conscientiously, while some other brands really exaggerated on price increases post-Covid,” said Jean-Philippe Bertschy, managing director at fund manager Vontobel.
“Clients aren’t stupid, they know exactly what value for money looks like.”
With the industry looking to fresh revenue sources, experts do not expect rapid growth in emerging markets such as the Middle East and India to fully make up for the anticipated single-digit growth in core regions like China and Europe.
As such, US growth remained “critical”, said Enrico Massaro, head of consumer and retail investment banking for Emea at Barclays. “The sector is really counting on it.”
“This is a year of transition — starting from a tough 2024, getting to a 2026 that’s more normalised. And 2025 getting us there.”
