What’s Going On With Luxury Brands?

The market for luxury brands is currently reaching its lowest numbers since the COVID-19 pandemic. LVMH, the group that owns Louis Vuitton and Moet Hennesey, and Kering, the parent company of Gucci, are two heavy hitters in the luxury sector and are mainly responsible for the sector’s recent poor performance. 

Kering released its quarter three revenue in October and the results are extremely disappointing. Kering’s revenue decreased by 15% compared to 2023 Q3. This drop can be attributed to Gucci’s revenue declining by 25% from the same time last year. In 2023, Kering replaced the entire creative team at Gucci, initiating a makeover led by creative director Sabato De Sarno. A year and a half later, De Sarno’s collections only make up a third of Gucci’s merchandise and he is still trying to find his feet in his new role. Kering announced that they expect their operating income in 2024 to be less than half of 2023’s. 

LVMH also experienced a disappointing third quarter due to decreased demand for luxury goods in China. Due to its recent poor performance, the LVMH stock is projected to continue this performance through Q4.

So why are these companies doing so poorly right now? It is important to highlight the last time luxury companies were doing this poorly, which was in 2020 during the COVID-19 pandemic. Travel heavily influences the luxury goods market, since 30% of revenue in the luxury sector is generated from consumers purchasing goods outside of their home country. Also, since 35% of the luxury sector market is Chinese, the industry experienced a huge loss when people from China stopped traveling to Europe. 

The luxury sector began to recover when consumer behavior experienced a drastic shift from experience-oriented to goods-oriented. Since people could not spend their money on experiences like traveling, they started purchasing more luxury goods from Gucci and Louis Vuitton through online shopping. However, now that people are fully settled in a post-pandemic world and inflation and interest rates are high, consumer behavior is beginning to return to how it was pre-pandemic and the demand for luxury goods is decreasing. 

Both Kering and LVMH are working towards improving their performance after a poor third quarter. LVMH continues to rise while Kering is experiencing inconsistent behavior and looking to get out of a rut.