Luxury 2016: The Year of the Struggle

According to the Chinese calendar, 2016 is the year of the monkey. Well it also appears that for the luxury market, it’s the year of the struggle.

We wrote about Hermes’s updated financial projections, but now we have some more numbers from across the industry for comparison. While Hermes didn’t get a lot of credit for its sluggish growth projections, seeing these other numbers makes them look downright fantastic. In case you haven’t noticed yet…2016 is going to be another hugely challenging year for luxury.

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Burberry recently released updated financials, and they’re in serious trouble. Comparable sales, a measure excluding fluctuations from store openings and closings, was down over 2% over the past six months and the company projects 2017 wholesale revenue to tumble a whopping 10%! Their shares in turn took a beating. As we’ve continued to report here, the company is blaming the usual culprits: weakening demand from Hong Kong and China and currency fluctuations in Europe.

We’ve also heard from LVMH and things are equally bad. First quarter revenue growth failed to meet analyst expectations and sales in the fashion and luggage verticals were totally flat.

Not to be outdone, Prada reported a whopping 26.6% decline in annual profit, and comparable sales at Gucci for the first quarter tumbled 8%.

Gucci is owned by luxury conglomerate Kering who seems to be taking a beating from all sides. First quarter sales for sister-label Bottega Veneta fell almost 8% as well. Obviously, share prices across the sector are down considerably through the first quarter.

Executive after executive pins the industry’s decline on either the challenges of operating in a global economy still largely stagnant since the financial crisis or on China. While these are surely unavoidable issues, we can’t but start to think the problem might be deeper than just external economic factors.

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It seems like the entire category is being redefined – luxury means something radically different to the consumer in today’s world than it did when Coco Chanel was galavanting through Europe. Social media has altered the very psychology of making a high-end retail purchase. Global travel destinations are over saturated with all the same retailers. The runway-production cycle has been turned upside down.

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The list goes on and on…join us on BopTalk where we continue to discuss the depth of the industry’s problems and how these developments might affect the consumer. Are new pricing schemes around the corner? Is the future for sales growth on the Internet?

Read related articles below:

Luxury Market Expected to Bottom Out This Year
China Woes Weigh Heavy on Luxury Market
Luxury Market Expects Weakest Year Since Lehman Crash
The Luxury Market after the Paris Attacks?
Global Price Implications on Chanel Street
Why Western Luxury Retailers Should Still Be Looking East

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4 Responses to “Luxury 2016: The Year of the Struggle”

  • Great article ! I didn’t realize the situation was as bad as it is!!! But somewhere deep down inside of me, somehow I am not a 100 % surprised…I think quality as change for the worst in certain big brand name, and their style is not as refined as it used to be… I feel like they run out of ideas!!

  • interesting topic – however I do believe that the oversaturation is also from constant buying and amassing great amounts of stuff – expensive but still just stuff. eventually every industry reaches a point where people just had enough, and it will take a downturn for a while. frankly, all I see is a drop in profit and a drop in share prices – so what? it happens, investors know it, executives know it, this is the way economics work. if we discuss losses and liquidation, I guess it is a different picture. but the level of growth this industry experienced over the past decade or so is unsustainable anyways. luxury companies used to sell at much lower levels and lower selling prices in the past, and you would get quality for your money – I don’t see it is such a disaster if they went back to those days.

  • Thanks for posting this interesting article. Maybe the luxury market decline has to do with the rising prices on the products from top luxury retailers…like Chanel, LV, Gucci. Maybe the retailer need to re-think their prices.

  • It’s amazing how prices of luxury goods are still soaring with all the loss talk – brands like chanel have price increases twice a year now! And, like mentioned by a few, sadly quality is decreasing too, and many ladies are opting for preloved and vintage. Wish there can be a return to more ‘normal’ pricing for healthier sales.