Gucci and Louis Vuitton are not the only luxury brands whose sales are slowing down. Mid of September Burberry announced raising concerns about a decelerating Chinese market and an uncertain global economic environment. Tourists´ expenditure from emerging markets visiting the Western countries would have also suffered a slight contraction.
In second quarter Burberry reported a 6% rise in same-store sales, compared with an 11% jump in the prior quarter. But, in third quarter´s ten weeks to mid September the brand reported flat sales —its worst performance since 2008—although sales increased by 6% if including new store space. This announcement caused a share price fall by 21%. Main reasons have been a slowdown in Asian markets, mainly China; but also sales in Europe and the US have shown a downward trend, where tourists from China, Middle East, Russia and India account for majority of sales.
In spite of many successful measures taken by former Chief Executive, Angel Arhendts, cancelling many franchise agreements to take more control of the brand´s interaction with customers and increasing the collections renewal per season so as to keep clients visiting their stores, the company has not been able to maintain the first quarter sales level.
Other luxury brands such as Hermes, Prada or Richemont group´s brands seem to get along better with the changing market conditions, although they have been also affected and are showing, still high, but more moderate growth rates. We could think that more aspirational or democratic luxury brands, would be primarily affected by macroeconomic shifts as their customers react first.
Hermes´s consolidated sales in the first half of 2013 amounted €1,767.2 million, up 11.0%. Operating profit and net profit rose by almost 14%. Hermes outlook for the rest of the current year is still very positive and expect sales could slightly exceed the 10 percent growth ratio targeted. Depending on currency fluctuations, recurring operating margin could be close to the one reached in 2012 (32.1%).
Regarding Prada, last month the company announced sales growth in Greater China, including Hong Kong, had slowed to 20 percent in the first half from 35 percent a year ago. Greater China, including Hong Kong, makes up 21 percent of Prada’s revenue. In Italy, which accounts for 18 percent of total sales, Prada said sales declined at its shops
Prada, which makes up 83 percent of group turnover, plans to add 80 new shops between this year and next, to its current portfolio of 491 stores entering new markets such as Qatar, Kazakhstan, and Morocco.
The brand had a 12 percent rise in second quarter sales, as a result of an improved product mix and a solid growth in Asia. Prada reported a near 8 percent increase in net profit for the six months ended July. The 308 million euros profit slightly lagged a 321.3 million euros average forecast by five analysts polled by Thomson Reuters.
Its shares have risen 8 percent so far this year, underperforming the luxury sector average which gained 18 percent, partly because the stock’s relatively high valuation. Prada, at 23.6 times forward earnings, is more expensive than Burberry and LVMH but earnings growth expectations are higher: on average, analysts expect Prada’s earnings to grow about 50 percent faster than LVMH or Burberry.
China, the world’s largest and fastest-growing luxury market, has been the true engine for the outstanding growth experienced by Luxury brands in the past years but signs of a slowdown in its economy, together with some concerns about Brazil, India or Russia have led analysts to think if the fashion luxury market is so invulnerable as it has been considered.