In 2024, the "demand winter" severely impacts the luxury goods industry! European fund management institutions look forward to the recovery beginning in 2025.

For France's richest billionaires, including LVMH President and CEO Bernard Arnault, 2024 may be a year they will never forget. Due to the continued significant decrease in demand for luxury goods in the global market, especially in the largest market - the Asian market, and the political instability in Europe, the overall net worth of France's luxury goods industry billionaires experienced the largest annual evaporation in history, with their total wealth shrinking at a record rate. The leaders of the three luxury goods giants, LVMH, L'Oral, and Kering, suffered a combined loss of about $70 billion. According to the Bloomberg Billionaires Index, Bernard Arnault, L'Oral heiress Franoise Bettencourt Meyers, and Kering CEO Franois Pinault, the wealthiest individuals in France and world-class billionaires, have all seen their overall wealth evaporate to a record level of about $70 billion. The luxury goods giants they control - LVMH, L'Oral, and Kering - are among the biggest losers on the French stock market this year, especially Kering, with the Gucci parent company seeing a significant drop in market value of about 41%. The global sell-off of luxury goods and high-end personal care industry stocks by investors, especially from China and other Asian markets, spending on luxury goods such as high-end leather goods, designer clothing, and high-end luxury skincare products has reached near-historic lows. Companies, including Gucci under Kering, are struggling to deal with new management and strategic shifts. France's volatile political situation, including the recent dissolution of the government led by Michel Barnier, has significantly weakened global investors' interest in French stock assets and triggered a global sell-off of French stocks. "Consumers from China and other Asian regions were expected to be the growth engine for 2024, but this has not been realized," said Ariane Hayat, a fund manager at Edmond de Rothschild Asset Management. "In addition, after the post-COVID retaliatory consumption gradually faded, the luxury goods market has inevitably shown signs of weakness after experiencing three years of extraordinary growth periods." After experiencing a consumer spending boom, the luxury goods industry finally "returns to reality." After the global lockdown triggered by the COVID-19 pandemic was lifted, sales in the luxury goods, high-end fashion, and luxury cosmetics industries surged over the past three years as consumers, fueled by the skyrocketing stock market due to "global central bank flood of liquidity" and government subsidies, began buying high-end luxury brands. During the unprecedented post-pandemic spending spree, the sales surge dynamics in luxury goods and high-end luxury skincare products helped push LVMH founder Arnault to the top of the Bloomberg Billionaires Index at one point, ahead of Tesla CEO Musk. He is currently ranked fifth, and this year he has personally lost more wealth than any of the 500 richest people in the world, with losses of about $31 billion. His wealth has now fallen out of contention with world's richest Musk. As for L'Oral heiress Bettencourt Meyers, who has long been the richest woman in the world, she became the first woman to have a fortune of $100 billion last year. She has now lost both titles. "For the entire luxury goods industry, it really has returned to reality," said Kevin Tozzi, a member of the Paris Carmignac Investment Committee. "Everything that has happened since 2023 is a sign of normalization." At the age of 88, Pinault founded the predecessor of Kering, and his wealth has also been significantly hit. Kering, the parent company of Gucci, has plummeted by about 64% from its historical high in August 2021 to its current value of only $22 billion. This is the largest percentage drop among all the individuals in the Bloomberg Billionaires Index during the same period, mainly attributed to the unprecedented demand troubles faced by its largest luxury fashion brand, Gucci. As Pinault's wealth shrinks, Kering is now run by his son, 62-year-old Franois-Henri Pinault. He is striving to transform this large luxury business empire from a mix of retail assets to a focus on high-end luxury goods. However, during his tenure, Kering still largely relies on Gucci's massive sales contribution, which has been fluctuating in performance. The Pinault family holds 42% of Kering's shares and 59% of the voting rights. Following a series of profit warnings, Kering's stock has continued to plummet since the beginning of this year. Once seen as comparable to the "Big Seven" of US tech stocks Since 2024, European luxury giants such as LVMH, L'Oral, Kering, and Richemont have collectively seen their stock prices plummet, but just two years ago, they were hailed by European fund giants as major growth drivers on the continent, compared to the "Big Seven" of US tech stocks, which include Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta Platforms, and have been the driving force behind new highs in the S&P 500. Looking at the entire US stock market, the "Big Seven" have been the core driving force behind the surge in US stocks since 2023, attracting global capital with unparalleled AI revenue scale, rock-solid fundamentals, a long history of strong free cash flow reserves, and expanding share buybacks. It is worth noting that this unprecedented "demand winter" has not had an equal negative impact on all luxury brands. The global top luxury brand - Herms, with individual items like the Kelly bag costing at least $10,000, unexpectedly saw an increase in overall sales in the third quarter, thanks to its unique blend of tradition and innovation, craftsmanship and creativity, and displayed a relatively positive growth trend.Product positioning is aimed at the wealthiest customers worldwide, whose consumption scale is often more elastic than less affluent customers. This is also why Gucci's sales, which lean towards the middle to high-end market, are weak, while sales for Herms, which cater to the wealthiest group, unexpectedly increased.In the 2024 luxury goods fluctuation list released by France's Prosper Bank, there are both the biggest winner - Herms, whose stock price has risen by about 18% in European stock markets since the beginning of the year, and the bottom-ranked stock of Kering Group. Andr Tuni, sales and trading manager at Prosper Bank, said that Herms's extremely high profit margin is due to the longstanding excellence and rarity of its products, while demand for Gucci products has decreased and recent management changes have yet to yield positive results. Can the luxury goods industry turn the tide in 2025? However, as the year-end approaches, some investment institutions are beginning to show optimistic sentiments about the entire luxury goods industry, which has seen continuous depressed stock prices this year. They are preparing for a possible recovery in demand. Analysts from HSBC stated that sales in China have not deteriorated further, sales in the United States are recovering, and they believe that the third quarter of this year was the recent low point for the industry. "To be frank, we are concerned about missing out on investment opportunities," the HSBC analyst team, including Elwan Lonbard, said in a recent investor briefing. "We believe that sales in the Chinese market have not worsened, and sales in the US have been significantly improving due to the substantial wealth growth brought by the stock market after the US presidential election. These are two very important factors." Amundi SA, a European asset management giant, has just announced the launch of a new exchange-traded fund (ETF) specifically investing in luxury goods stocks in the European market. Amundi SA stated that the issuance of this ETF is mainly due to the potential long-term growth prospects of luxury goods stocks in terms of stock prices and performance fundamentals, including the expansion of the middle class in emerging markets like Asia, consumers' renewed attraction to some popular brands, and an increase in demand for high-end products. Since early December, some European asset management institutions believe that the worst period for this industry may have passed, which has stimulated bullish sentiments among investors and led to a significant rebound in the prices of some large luxury goods and high-end skincare and beauty stocks. The Stoxx Europe Consumer Goods and Services Index rose by about 5% this month, marking the best performance since February. "US tech giants have performed extremely well this year, far surpassing European luxury goods stocks, but luxury goods stocks may stage a comeback in 2025," said fund manager Hayat from Edmond de Rothschild. "I can foresee a significant rebound in stock prices and performance fundamentals in this industry starting from the second half of 2025."