Weakening Trend in Luxury Goods Spending
The latest U.S. credit card data from Barclays reveals negative spending on luxury goods in November, down 15% year-on-year following a decline of 14% in October. Barclays analysts express caution about the performance of luxury brands during the fourth quarter due to the weak trends in the U.S. Furthermore, Citi’s credit card data shows that purchases of luxury fashion were down 9.6% year-on-year in November, with steeper declines in department stores and online.
Surplus Inventory and Declining Share Prices
Retailers began this holiday season with excess inventory, compared to normal levels, due to purchasing orders made before the sector started cooling off after a post-pandemic splurge. Share prices of leading luxury brands like LVMH, Kering, and Burberry have also experienced significant declines in recent months, while e-commerce operator Farfetch has seen a substantial decrease in its share value.
Challenges for Department Stores
Citi analysts predict that department stores, particularly in the U.S., could face challenges from slowing demand over the next six to 12 months. Aggressive discounting by department stores may attract shoppers, but it can potentially erode the appeal of luxury fashion brands and discourage consumers from making purchases, anticipating better deals in the future.
Fashion Brands’ Strategies to Overcome Challenges
Leading global fashion brands like Hermes, Chanel, Louis Vuitton, and Dior maintain control over their retail operations by primarily selling through their own stores. This approach allows them to avoid discounts and fully manage their brand image. Fashion houses have also become better equipped since the 2008-2009 crisis, applying artificial intelligence to predict sales volumes, adjusting production, and refining the mix of seasonal and permanent styles. These measures, along with improved agility in production, have helped brands mitigate the risks of overstocking and adapt to changing market conditions.