Gucci Luxury Robe Trade at Galleria Vittorio Emanuele Shopping Center in Milan, Italy.
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The European problematic luxury sector shows signs of revival after the optical earning season. But continuous weakness in China – and the prospect of American tariffs – could leave even the most exclusive brands that fight for a share in their pocket.
“2024 was one of the worst years for the sector. We believe that there will be a kind of normalization through 2025, especially in the second half,” said Simone Ragazzi, a senior analyst at Algebris Investments Capital, she told CNBC via video call last week .
A bag manufacturer Hermes published Sales blowing in the fourth quarter Earlier this month, extending its outsiders at the end of a wide season of earnings, during which even fashion houses are installed Lvmh and the owner of Gucci Kering Beat quarterly forecasts.
The results added to the weight of the earlier forecasts of long -awaited Turn for the sectorafter the owner of Cartier Richlanica Last month, he published his “highest ever” three -month sale in three months until December.
“The conclusion seems to be the worst behind us – it was most likely the third quarter 2024. – and mostly we see a cyclical recovery, guided by US consumers and European consumers,” Luca Solca, an older analyst for global luxury goods in Bernstein, said via E – mail.
American tariff threats of weavers
However, the questionnaires remain around the recovery of Chinese consumption – a long -standing pillar of the luxury market – and the perspective of American tariffs that interfere with the sector and beyond.
Still weak Chinese sales remained a recurring topic of reports in the fourth quarter, with L’Oreal and Kerring’s Gucci – two groups specially exposed to the market – pointing out Declaining sales in the country. In the meantime, possible views to European companies under US President Donald Trump, along with a wide macroeconomic insecurity, were key to profit calls.
Zuzanna Pusz, head of European luxury goods at UBS, she told CNBC to be imposed on additional duties, the companies will probably seem to be transferred to consumers through price increases – something both Kering and Hermes signaled earlier this month that they could make. However, she noted that some companies would have a harder time justifying an additional increase in prices than others.
“We are already coming from big price increases. If the companies have 25% of tariffs, it will be difficult to make up for them,” Ragazzi agreed, noting that it could be “very painful” for some companies.
The European Luxury Sector is unusual in that most of his operations cannot be repeated in overseas markets like the US – the key intention of Trump’s imports. For example, giving the “Made in Italy” sticker on the leather jacket depends on the product that is produced there.
This suggests that luxury companies could be exempted from the most important measures, Pusz said. However, to the extent in which trade views are harmed by targeted economies, such as China – by increasing the total prices and distracting the consumer feelings – this could be concerned about the sector.
“Anything that would adversely affect the economy in China would be a risk,” Pusz said through video calls earlier this month.
Deviations between the best and the others
This, in turn, could worsen the existing divergence between the best and worst companies of luxury markets, analysts agreed.
“Whether they are tariffs or any other shocks, when the consumer has to buy less, they become even more selective, and they will take even more brands they like,” Pusz said.
Carole Madjo, Head of European Luxury Robe research at Barclays, noted that some luxury brands have been punished lately for “lack of innovation [and] High prices, “and it would be further obliged to justify your prices.
Gray leather bag Hermes Birkin on the fashion photo session of the Street Style, May 16, 2024 in Paris.
Edward Berthelot | Getty Images Entertainment | Getty Images
“Since macro, it becomes more challenging for the consumer base … They buy less, but buy better,” Madjo told CNBC “”Squawk Box Europe“Earlier this month.” The sector is now aware of all these questions and tries to start having some solutions. “
Analysts agreed that the better brands and those exposed to the consumer base of the upper grades would probably stay in front of at least in the short term.
“Quality names can shine brighter in the middle of idiosyncratic challenges in the industry,” Bernstein’s Solc said in a note last week, pointing to the continuous power of extracted brands such as Richemont and Hermes, at the same time citing Moncler and Burberry as the odds of growth.
“The big question is what luxury means today,” Ragazzi remarked. “What becomes even more obvious is good will or heritage that brands in the past have somehow disappeared.”
