Major luxury corporations' performances are deteriorating more and more. While the economic downturn in China, which has led the global luxury market, has been pointed out as a major cause, there are assessments that the growth trend of the luxury industry itself has effectively reached its limit.
The Wall Street Journal (WSJ) analyzed the reasons for the sharp decline in luxury corporations' sales in an article titled 'Luxury brands get hit by a change in atmosphere' on the 27th (local time), noting that despite not being a serious economic recession, the luxury industry is facing significant structural changes rather than a temporary downturn.
Previously, Louis Vuitton Moët Hennessy (LVMH), the world's largest luxury company, announced on the 24th that its operating profit for the first half of the year was approximately 9 billion euros (about 15 trillion won), a 15% decrease compared to the same period last year. Sales also fell 4% year-on-year to 39.8 billion euros (about 64 trillion won), due to continued poor performance from key brands such as Louis Vuitton and Christian Dior.
LVMH pointed to a decrease in Chinese consumption as the cause of its poor performance. With a sharp drop in luxury consumption within China and Chinese tourists who had taken advantage of the yen's depreciation to purchase luxury goods in Japan facing difficulties in currency arbitrage shopping, overall demand has significantly declined. Moncler, which announced its performance on the same day, also reported a 1% decrease in sales in the second quarter compared to the previous year due to similar factors.
WSJ noted, "Given the record consumption of luxury goods during the pandemic, it may currently be a period for consumers to digest that consumption," while also pointing out that "the prices of bags had risen excessively at that time, and consumers are now turning their wallets to areas of consumption that offer 'value for money.'" This suggests that in recent years, luxury corporations have begun to face consumer backlash as they excessively increased prices for fashion and leather products.
The representative brand of LVMH, Louis Vuitton's Alma BB monogram bag, sold for 1.67 million won in March 2020, during the early stages of the pandemic, but the current price has reached 2.68 million won. The price increase rate over five years exceeds 60%.
WSJ pointed out that the reason luxury jewelry corporations continue to experience growth is that, unlike fashion and leather product corporations, they have refrained from price increases. Richemont, the parent company of Cartier, stated that jewelry sales increased by 11% in the April to June period compared to the previous year. WSJ reported, "Demand for Richemont's lower-priced product lines remains strong," adding that "'aspirational shoppers' who have moved away from brands like Gucci are still visiting Cartier stores."
There are also claims that excessive price increases by luxury corporations have led to backlash from MZ generation, the future consumer group. Last year, Generation Z's luxury consumption decreased by 7%, amounting to $5.7 billion (about 8 trillion won). They are beginning to feel disillusioned with luxury as they encounter issues related to labor exploitation and price distortion in the luxury industry through social media.
Interest in luxury items on social media, which has facilitated luxury consumption, is also decreasing. Consulting firm Bain & Company stated, "The increase in the number of people following luxury brand accounts on social media has stagnated," and predicted that engagement with luxury brand accounts this year would decrease by 40% compared to 2020. WSJ reported, "The appearance of vintage dresses on the red carpet is a sign of a shift in luxury consumption trends."
The investment industry has voiced evaluations that the growth trend of the luxury market has already waned. UBS, which analyzes major European luxury corporations, stated, "We have been waiting for recovery over the past two years, but now questions about the long-term growth itself are increasing." Global investment bank Bernstein also expected that luxury industry sales would effectively stagnate this year.
WSJ said, "The luxury industry has traditionally grown at double the rate of global economic growth, but last year was the weakest since the 2008 financial crisis, and this trend is continuing this year." It continued, "Since the industry's size has already increased by 50% from 10 years ago, it will not be easy for capable new designers to sustain high-speed growth targeting Generation Z as before."