China’s luxury market has not seen the expected recovery in spending on high-end consumer goods since the country’s Covid-Zero policy was lifted over a year ago. As a result, luxury shops are depending on demand from the US to sustain their business.
L’Oreal, the cosmetics group, experienced a significant decline in sales in North Asia, leading to a plunge of up to 7.7% in its shares. Similarly, Hermes International, the French luxury brand, surpassed earnings expectations but identified Asia-Pacific (excluding Japan) as its weakest region.
Nicolas Hieronimus, CEO of L’Oreal, expressed disappointment in China’s lack of recovery, stating that consumer confidence remains subdued. Other fashion houses also noted that although demand among Chinese shoppers at home and abroad is improving, it is still not as strong as anticipated. Surprisingly, the US and Japan have shown unexpected resilience in luxury sales.
Hermes witnessed a remarkable 22% increase in sales in the Americas in the last quarter, exceeding estimates. Likewise, LVMH, the luxury conglomerate behind brands like Louis Vuitton and Christian Dior, reported stronger-than-expected demand from the US. Luca Solca, an analyst, highlighted Hermes’ success in the US as a sign of resurging confidence and lower inflation among American consumers.
L’Oreal’s struggles in North Asia, including China and Korea, continue due to challenges in the travel retail market. This has particularly affected its premium unit, L’Oreal Luxe, which includes popular brands like Lancome and recently acquired Aesop. Similarly, Swatch Group fell short of its CEO’s sales predictions in China, with brands like Omega and Longines failing to attract returning customers.
Despite these setbacks, luxury companies remain committed to the Chinese market, as it is still Asia’s largest economy. Hieronimus stressed the attractiveness of the Chinese beauty market, citing its vast size. He stated, “Even if it grew only in the mid-single digits – +6% to be precise – it would add half an Italy every year.”
In conclusion, luxury brands are optimistic about a potential revival in the Chinese market, but for now, they must rely on demand from the US to compensate for the sluggish recovery in China.
Useful links:
1. BBC Business
2. CNBC Luxury
