During the pandemic, the luxury goods market grew at record pace as shoppers stuck at home treated themselves to high-end items. There are clear signs, however, that the market is now returning to more moderate growth as shoppers rein in their luxury spend.
Industry leader LVMH reported that sales grew by only 9% in the third quarter of 2023 to €19.9 billion, down from a 17% increase in the previous quarter. CFO Jean-Jacques Guiony told analysts that ‘after three roaring years and outstanding years, growth is converging toward numbers that are more in line with the historical average’. French luxury group Kering also reported that group revenue was €4.5 billion during the same period, down 13% as reported and down 9% on a comparable basis. McKinsey has suggested that the general decline in the luxury sector is the result of a softening demand for luxury goods. This is reflective of challenging macroeconomic conditions, including high rates of inflation and interest as well as growing global economic instability.
That said, Hermès appears to be defying the luxury slowdown and reported third quarter sales of €3.365 million, up by 16%. All geographical areas (Asia, the Americas and Europe) similarly experienced solid performances with growth at 20% or above.
In early 2023, Hermès introduced five new bags for spring/summer 2023 as well as price increases by as much as 10% in response to global inflation and rising manufacturing costs. It has been reported that ‘unlike most goods where demand softens as prices rise, the luxurious allure of a Hermès bag, with some costing over $10,000, only seems to improve as prices increase’. Hermès also paid a €4,000 one-time bonus to each of its 19,700 employees earlier this year amid surging sales and profits.
Whilst the global economic outlook may be uncertain and the luxury goods market appears to be slowing, demand for Hermès’ top-tier goods remains strong. Its full-year results for 2023 will be published in February 2024, but historically Hermès has consistently outperformed other fashion houses in the luxury sector during economic downturn. In the aftermath of the financial crisis in 2009, luxury sales suffered under the strains of a global recession, but Hermès was again the outlier and saw its sales grow by 3.2%.
Following a disappointing October in which retail sales hit their lowest levels since lockdowns in 2021, retailers were hoping for a profitable Black Friday ahead of the Christmas trading period. Sales have been forecast to hit £8.74 billion over the Black Friday weekend, representing a marginal rise of 0.4% from last year’s figures of £8.71 billion. Early figures released on 24 November 2023 suggest that footfall is up with central London footfall traffic increasing by 13.1% from last week and 1.5% from this time last year.
In light of the ongoing cost of living crisis, retailers and manufacturers are expecting a growing number of customers to purchase refurbished and pre-owned items this year, in order to save money and shop more sustainably. Second hand sellers including eBay and Oxfam anticipate increased sales of used items over the Black Friday weekend too.
Meanwhile, other retailers, such as Desmond & Dempsey, are participating in Black Friday discounting for the first time. Molly Goddard, co-owner of the luxury pyjama brand, noted that ‘quite frankly, our mortgage went up significantly’ as a factor in the decision to partake in the sales for the first time since the brand was founded in 2014, as well as competition amongst peers offering up to 50% off sales. Goddard added that she wanted to ensure Desmond & Dempsey ‘remained on people’s shopping lists’, which is perhaps a testament to the ongoing difficulties faced by retailers in winning customers. It has been reported that consumer interest in Black Friday spending dropped from 61% last year to 44% this year.
Full Black Friday figures still remain to be seen, but the day itself was somewhat fraught with challenges – HSBC’s ‘internal system issue’ led to a mobile and online app outage, meaning many consumers were unable to make discounted Black Friday purchases. Amazon similarly faced its biggest walkout in history with over 1,000 workers on strike on one of the year’s busiest shopping days.
As highlighted in the August fashion, luxury and lifestyle aggregator, there are still widespread concerns over the ‘tourist tax’, with fresh calls at the Conservative Party conference for the tax to be scrapped. Retailers fear that it could affect their all-important Christmas trading. Until January 2021, foreign visitors could claim a 20% refund on much of their shopping in the UK. Although VAT-free shopping was briefly re-introduced under Liz Truss’s government, it was then reversed by Chancellor of the Exchequer, Jeremy Hunt. The loss of duty-free shopping has continued to attract criticism ever since, making it harder for British businesses to compete with their European competitors.
Experts from the Centre for Economic and Business Research have claimed that letting overseas tourists shop VAT-free could boost the economy by £10 billion, but HM Treasury insists that reinstating the measure would lead to £2 billion of lost tax revenue. Around 350 businesses have sent an open letter to the chancellor asking for the situation to be addressed.
Retailers have been raising their case against the tax. Mulberry chief executive, Thierry Andretta, has called for it to be scrapped to help business growth in the UK, particularly when a weak economic outlook is impacting the entire luxury industry. Fortnum & Mason CEO, Tom Athron, has similarly urged the tax to be scrapped to prevent losing sales to France, as Paris will be an attractive option for visitors next year when they host the Olympics.
Whilst the tourist tax is here to stay for now, the chancellor has suggested that the government was ‘looking again at the numbers’. This may be a space to watch given the expectation that a UK general election will take place in 2024.