Luxury Sales Continue to Boom Post-pandemic, but for How Much Longer?
LONDON — The ancient Romans had a phrase for it, and so does Gen Z. The question is: how long will the carpe diem, “yolo,” free-spending mood last among luxury consumers?
Burberry and Compagnie Financière Richemont outstripped market expectations with their first-quarter results on Friday, buoyed by a post-pandemic spending euphoria and a joyous return to shopping in physical stores, except in mainland China.
But it’s unclear how long the buzzy mood will last before rising inflation, the threat of recession, and China’s economic policies in the medium term begin to weigh on the luxury consumers’ minds, and wallets, as they already have done with shoppers lower down the price spectrum.
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The financial markets are already jittery. Shares in Burberry and Richemont both closed down on July 15 despite the upbeat results. Burberry sank 4.4 percent to 15.76 pounds while Richemont fell 2.8 percent to 98.06 Swiss francs.
Earlier in the day, Richemont and Burberry had both published their results, and while those companies operate in different parts of the luxury market, the team at Bernstein offered a similar analysis of both.
“It seems that the ‘yolo’ [you only live once] effect out of the pandemic is affecting all nationalities — and has yet to normalize,” said the team, referring to Richemont’s double-digit revenue gains and its 5 percent beat on consensus expectations in the quarter.
In a separate report earlier this month, Bernstein had said getting out of the COVID-19 pandemic “is working like a massive feel-good boost: a global yolo attitude is creating an outsized luxury demand wave.”
On Friday, Bernstein also referred to the strong numbers coming out of Brunello Cucinelli, and Swatch, in recent days. “This seems a good platform to enter the second half of the year, despite background concerns on macro and politics.”
In the first quarter, Richemont posted double-digit revenue gains across all product categories and regions, except for Asia-Pacific. At actual exchange rates, sales rose 20 percent to 5.26 billion euros, and at constant rates they were up 12 percent.
Richemont said the U.S. was its largest single market in the three-month period. Sales climbed 25 percent to 1.34 billion euros at constant exchange, and accounted for 22 percent of Richemont’s overall revenue in the three months.
Richemont’s sales in Europe grew by 42 percent, due to “robust domestic demand,” and a return in tourist spending, primarily from American and Middle Eastern clients. Growth was strong across markets, particularly in France where sales increased in the triple digits.
Mainland China was a drag on growth due to COVID-19-related lockdowns, but other countries in the APAC region helped to mitigate those declines.
Richemont didn’t update on trading, or its ongoing negotiations to merge Yoox Net-a-porter Group with Farfetch to create a new luxury platform.
Bernstein described Burberry’s performance, which wasn’t as robust as Richemont’s, in similar “yolo” terms.
In the 13 weeks to July 2, Burberry’s retail revenue increased 5.4 percent to 505 million pounds, while at constant exchange, growth was flat.
Burberry surprised the markets with a 1 percent uptick in comparable store sales after analysts had penciled in a 2 percent contraction, given the downturn in China.
Like Richemont, Burberry also saw strong demand in Europe, with comparable store sales growing 47 percent during the period due to demand from local clients, and sales to American tourists.
Both companies also witnessed a strong pickup in APAC markets outside of mainland China: Richemont reported an 83 percent uptick in Japan sales at constant exchange while Burberry noted that declines in mainland China were partially offset by “strong performances” in the recovering markets of Japan and the South Asia-Pacific region.
With a strong start to the fiscal year, these luxury brands are hedging their bets, keeping one eye on the macro scene and the other on growth.
Burberry noted that its performance in mainland China has been “encouraging” since its stores reopened in June, and it is “actively managing” the headwind from inflation globally.
The company said it continues to target high-single-digit revenue growth and 20 percent margins, at constant exchange rates, in the medium term.
Julie Brown, Burberry’s chief operating and chief financial officer, said the company is upbeat about its prospects in the region, where some 40 percent of its distribution was shut earlier this year due to COVID-19 restrictions.
“Despite near-term uncertainty, we are very encouraged by what we are seeing, and very confident about China’s long-term recovery,” Brown said. By near-term uncertainty, she was referring to ongoing COVID-19 requirements and 72-hour PCR tests, which have been hindering footfall.
Asked about Burberry’s decision to shut its Canton Road store in Hong Kong earlier this month, Brown said the closure was “in line with Burberry’s elevation strategy” in the region.
Canton Road was the second major store that the British brand has shuttered in Hong Kong since the COVID-19 pandemic. The company first closed its flagship in Causeway Bay last year.
Luxury retail in Hong Kong has taken a big hit since the introduction of broader controls between mainland China and Hong Kong in early 2020, and the wave of social unrest that proceeded the tighter rules.
Brown added that the 4 percent slowdown in Burberry’s U.S. sales was due to “very tough comparatives” with the corresponding period last year.
She said there was “good growth in outerwear with bags also outperforming” in the region, while U.S. customers have been moving to higher AUR [average selling price] categories.
“We haven’t seen any major pressure on [U.S.] consumers at this moment in time,” Brown said in response to a question about whether shoppers were spooked by surging inflation.
As reported, Burberry is doubling down in the U.S., courting customers in smaller cities where demand for luxury goods is on the rise.
In June, the brand worked with Neiman Marcus’ Atlanta store on a monthlong immersive installation showcasing the new Burberry TB Summer Monogram collection.
For the first time in Neiman Marcus’ history, the entire exterior of a store was taken over by a brand.
The outside of the Atlanta store at the Lenox Square mall was wrapped in a pattern that fused the Burberry check with the TB Monogram print. Inside there was a “graphic, sculptural space” that included the Burberry signature patterns.
The space was meant to conjure a summer holiday spirit, with more than 50 styles in men’s, women’s and accessories — all exclusive to Neiman’s — on display inside the store.
The Atlanta takeover followed a mega event at Burberry’s Rodeo Drive flagship that celebrated the spring 2022 collection and Burberry’s partnership with downtown Manhattan restaurant Lucien in May.
Brown also shouted out to the U.K. government, which is in a state of flux, for more business support to drive international tourists to the U.K.
Brown noted with dismay that American tourists have been returning to Continental Europe to shop, and bypassing the U.K.
As reported, Prime Minister Boris Johnson’s now-defunct government axed tax-free shopping for most foreign tourists in a bid to claw back as much cash as possible to pay for the generous furlough program during the pandemic.
The wider business community in the U.K. is hoping that the prime minister who will succeed Johnson in September will reinstate shopping perks for foreigners.
Brown said Burberry’s data indicates that the cancellation of the tax-free program has been damaging its sales to tourists in the U.K., “so we need alternatives. Right now, we’re seeing a much stronger recovery in tourism in EMEIA [Europe, Middle East and Africa] than in the U.K.,” she said.
Although Richemont didn’t talk about current trading, or its future prospects, the company’s latest numbers told an interesting story.
The group, parent of brands including Cartier, Van Cleef & Arpels, Dunhill and Chloé, posted double-digit revenue gains across all product categories and regions, except for Asia-Pacific, which was hit by the China lockdowns.
At actual exchange rates, sales rose 20 percent to 5.26 billion euros. At constant rates they were up 12 percent in the April to June period.
The U.S., which was driving those sales gains, has proven to be a cash cow for a while now. As reported, in the fiscal year ended March 31, sales in the Americas region climbed 79 percent and put it on par with Europe as one of Richemont’s most lucrative regions.
Asked in May about overall sales trends in the U.S., Richemont’s founder and chairman Johann Rupert said demand is “not just on the two coasts. Have you ever been to Midland, Texas, where they eat pan-fried steaks? Well, they buy watches there as well,” he said.
During the same call, Cyrille Vigneron, president and chief executive officer of Cartier, said the brand has been performing strongly in the U.S. across jewelry, watches — and every other category. Demand, he said, “has been very solid for the past year.”
Trends in Mainland China are looking up, too.
Richemont said that while sales in Mainland China were 37 percent lower in the quarter, the rate of decline “softened” to 12 percent in June when restrictions were progressively eased.
Demand for Richemont’s big-ticket items doesn’t appear to be slowing, either.
Jewelry sales were up 12 percent at constant exchange, benefiting from “thriving retail sales” at Buccellati, Cartier and Van Cleef & Arpels, while sales at Richemont’s watchmaking division increased by 10 percent at constant rates, driven by online and offline channels.
While most watch maisons and regions did well, Richemont noted that A. Lange & Söhne, Panerai and Vacheron Constantin continued to outperform the other brands in the watch stable.
Richemont’s fashion and accessories houses, meanwhile, posted a 28 percent increase in the period, supported by strong retail and wholesale sales, and “sustained demand across the various brands and regions.”
Bernstein said Richemont’s double-digit growth — in the face of a double-digit decline in China — was “a testament to the continuing strength of high-end consumer demand.”
They just can’t stop seizing the moment, at least for now.
