A ‘perfect storm’ for luxury goods

Luxury goods companies are queuing to report falling profits as the problems keep on coming.

After years of raking it in, luxury goods brands have fallen on harder times. Burberry reported a 14% increase in overall sales in its first half, but noted that like-for-like sales slid in the second quarter as Chinese demand faded. The 158-year-old company expects the "more difficult external environment" to weaken margins.

Mulberry, which specialises in handbags, issued its fourth profit warning in a year as sales slid by 9% in the six months to September. Its annual profits are now likely to be just £4m, compared to a previous estimate of £10m, reckons Barclays.

Mulberry has been struggling with a failed move upmarket and tough competition as well as cooling demand. LVMH, the world's biggest luxury goods company, also noted slower growth in Asia.

What the commentators said

Luxury-goods groups "tend to counter doomsaying by snorting that their customers are never short of money, darling", said Jonathan Guthrie in the FT. But this "exceptionalism has come unstuck".

Flaunting your wealth is no longer the way to win friends and influence people in China: thanks to the government's ongoing anti-corruption drive, conspicuous consumption is out.

This campaign is reportedly examining 10,000 people and has wiped an annual $9bn off entertainment budgets, said Alistair Osborne in The Times. The sector is also reflecting a general emerging market downturn, and we can't count on North Korea's Kim Jong-un to fill the gap, "what with his main luxury being cheese".

Meanwhile, wealthy Russians are being hit by EU and US sanctions, said the FT's Andrea Felsted. Then there is concern that the worsening conflict in Syria and Iraq could dent demand from Middle Eastern shoppers.

The rapidly spreading Ebola virus is also in the mix, given the potential impact on luxury consumers from Asia and Africa. Add this all up, said Luca Solca of Exane BNP Paribas, and the sector is facing a "perfect storm".

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020