Gucci luxury store in the Galleria Vittorio Emanuele shopping center in Milan, Italy.
Bloomberg Bloomberg Getty images
A disturbing European luxury sector shows signs of revival after the optimistic season of earnings. But constant weaknesses in China – and the perspective of American tariffs – can leave even the most exclusive brands fighting for participation in your pocket.
“2024 was one of the worst years for the sector. We believe that there will be a type of normalization during 2025, especially in the second half, “said Simone Ragazzi, a portfolio manager at Algebris Investments, said CNBC via video phones last week.
Birkin Toram Maker Hermes Published Dunes sales in the fourth quarter Early this month, expanding the outcome of the results at the end of the broadly optimistic earning season LVMH and Gucci-Nower Dry overcome quarterly forecasts.
The results added weight to previous long -awaited forecasts Return for the sectorafter the owner of Cartier Richemont Last month, she published the “Supreme” quarterly sales in history within three months to December.
“The conclusion seems to be the worst behind us – most likely it was the third quarter of 2024 – and we observe a cyclical recovery, mostly by American consumers and European consumers”, Luca Solec, a senior analyst at global luxury goods in Bernstein, he said via e -mail .
American tariff threats are circulating
Nevertheless, question marks remain around the recovery of Chinese consumption – a long -term pillar of the luxury market – and the prospect of American tariffs hindering the sector and more.
Still poor sales in China remained a repetitive topic of reports in the fourth quarter, with L'Oreal and Kering's Gucci – two groups particularly exposed to the market – emphasizing decreasing sales in the country. Meanwhile, possible fees for European companies under the US President Donald Trump, combined with wider macroeconomic uncertainty, were key features of calls for earnings.
Zuzanna Pusz, head of European luxury goods in UBS, said CNBC that if additional responsibilities were imposed, companies will probably want to give them to consumers by means of price increases – something that both Kering and Hermes signaled at the beginning of this month that they can do it. However, she noticed that some companies would have a more difficult time, justifying additional price increases than others.
“We are already coming out of large price increases. If companies had 25% of tariffs, it would be difficult to compensate, “Ragazzi agreed, noting that for some companies it could be” very painful “.
The luxury sector in Europe is unusual, because most of its activities cannot be reproduced on foreign markets such as the USA – the key intention to pay Trump imports. For example, the end of the “Made in Welliy” label on a leather jacket depends on the product produced there.
This suggests that luxury companies can be released from the most criminal resources, said the forest. However, to the extent that trade fees harm targeted economies, such as China – by increasing general prices and hindering consumer moods – this can be a problem for the sector.
“Everything that would negatively affect the economy in China would be a risk,” said the forest through a video conversation at the beginning of this month.
Discrepancy between the best and the rest
This, in turn, can worsen the existing discrepancy between the best and the worst companies on the luxury market, analysts have agreed.
“Regardless of whether the tariffs or any other shocks, when the consumer must buy less, become even more selective and will take even more brands that they like,” said Pusz.
Carole Madjo, head of European research of luxury goods in Barclays, noticed that some luxury brands have recently been punished for “lack of innovation (i) high prices” and will be obliged to justify their prices.
Gray leather bag Hermes Birkin during a street style photo session, May 16, 2024 in Paris.
Edward Berthelot Getty Images Entertainment | Getty images
“Macro becomes more difficult for consumers … They buy less, but they buy better,” said Madjo CNBC, “Squawk Box Europe“At the beginning of this month.” The sector is now aware of all these problems and tries to start to have some solutions. “
Analysts have agreed that higher quality brands and those exposed to a higher consumer base would probably remain in front, at least in the next semester.
“High -quality names can shine brighter among idiosyncratic challenges of the industry,” said Solec Bernstein in a note last week, pointing to the continuous strength of outstanding brands, such as Richemont and Hermes, while citing Moncler and Burberry as growth prospects.
“The most important question is, which currently means luxury,” Ragazzi noted. “What becomes even more visible is good will or heritage that brands had in the past have disappeared.”