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A Gucci luxury items store at the Galleria Vittorio Emanuele shopping center in Milan, Italy.
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The problematic luxury sector of Europe shows revival signs after an optimistic profit season. But the continuous weakness in China, and the perspective of American tariffs, could even leave the most exclusive brands that compete on the pocket.
“2024 has been one of the worst years for the sector. We believe that there will be a kind of normalization in 2025, particularly in the second half,” said Simone Ragazzi, a senior analyst of Variable Income of Algebris Investments, to CNBC last week last week past.
Birkin bag Hermes aware Sales of the fourth trimester of Reventón Earlier this month, extending its higher performance at the end of a widely optimistic profit season, during which even fashion houses LVMH AND OWNER OF GUCCI Dry He beat the quarterly forecasts.
The results added weight to previous forecasts of a long -awaited Sector responseAfter the owner of Cartier Richemont Last month he registered its “highest” quarterly sales in the three months to December.
“The conclusion seems to be the worst behind us, which was probably the third quarter of 2024, and we are seeing a cyclical recovery in progress, driven by consumers and European consumers of the United States. UU., For the most part” , Luca Solca, senior analyst at global luxury products in Bernstein, said by email.
Tarife of the tariff threats of the United States
However, the question signs remain around the recovery of Chinese consumption, a pillar for a long time of the luxury market, and the perspective of US tariffs that hinder the sector and beyond.
China’s still weak sales remained a recurring theme of the fourth quarter reports, with L’Oreal and Kering Gucci, two groups especially exposed to the market, highlighting Sales decrease In the country. Meanwhile, possible levies on European companies under the president of the United States, Donald Trump, along with a broader macroeconomic uncertainty, were key characteristics of earnings.
Zuzanna Pusz, director of European luxury products in UBS, told CNBC that if additional duties are imposed, companies would probably seek to pass them to consumers through price increases, something that Kerery and Hermes pointed out at the beginning of this month What can they do. However, he pointed out that some companies would have more difficult to justify additional price increases than others.
“We are already leaving large price increases. If companies had 25%tariffs, it will be difficult to compensate them,” Ragazzi agreed, and said it could be “very painful” for some companies.
The luxury sector of Europe is unusual, since most of its operations cannot be replicated in foreign markets such as the United States, a key intention of Trump’s import positions. Heat a label “made in Italy” in a leather jacket, for example, depends on the product occurs there.
That suggests that luxury companies could be exempt from the most punitive measures, Pusz said. However, to the extent that commercial encumbrances harm directed economies, such as China, increasing general prices and hindering the feeling of the consumer, that could be a concern for the sector.
“Anything that would negatively affect the economy in China would be a risk,” Pusz said through the video call at the beginning of this month.
Divergence between the best and the rest
That, in turn, could worsen the divergence between the best performance companies in the luxury market, analysts agreed.
“Whether tariffs or any other shock, when a consumer has to buy less, they become even more selective and will take even more the brands they like,” Pusz said.
Carole Madjo, head of European research of luxury goods in Barclays, said that some luxury brands had been punished lately by a “lack of innovation (and) high prices”, and would be forced to justify their prices.
A Hermes Birkin gray leather bag in a street fashion photo shoot, on May 16, 2024, in Paris.
Edward Berthelot | Getty Images Entertainment | Getty images
“With the increasingly challenging macro for the consumer base … they are buying less but buying better,” Madjo told CNBC. “Squawk Box Europe“Earlier this month.” The sector is now aware of all these problems and is trying to start having some solutions. “
Analysts agreed that the highest quality brands and those exposed to the high -end consumers base probably remain in front, at least in the short term.
“Quality names can shine more amid the idiosyncratic challenges of the industry,” said Solca de Bernstein in a note last week, pointing out the continuous strength of outstanding brands such as Richemont and Hermes, while citing Moncler and Burberry as Perspectives Growth.
“The big question is what luxury means today,” Ragazzi said. “What is becoming even more evident is the goodwill or inheritance that the brands had in the past has disappeared.”
