2024 will be a difficult year for the global luxury goods industry. The heightened uncertainty and slowdown in global economic growth have had a significant impact on the luxury goods market. According to the "2024 Global Luxury Goods Market Research Mid-Year Update" released by Bain & Company, the growth rate of the global luxury goods market in the first half of 2024 is expected to drop to 2%, far lower than the 7% level in 2019. In addition, the consumption of luxury goods by younger generations such as Generation Z has slowed down due to rising unemployment.

In addition, the growth of the luxury goods industry is also challenged by changes in consumer purchasing behavior. For example, consumers are increasingly inclined to purchase sustainable and personalized products, which has put pressure on traditional luxury brands to transform. At the same time, changes in the macroeconomic environment have had an impact on middle- and high-income groups, which may affect their consumption habits and luxury purchasing power.

In addition, competition within the industry is also intensifying. The rise of emerging brands and mid-to-high-end brands has shared the market share of traditional luxury brands and intensified the competitive pressure among brands. Some luxury brands, such as Burberry, have weakened their brand appeal due to the mismatch between the speed of product line updates and changes in market demand, which in turn has affected their performance and market position.

Burberry’s market value has been cut in half

Burberry Group Plc, as a well-known luxury goods giant, has long been a component of the FTSE 100 Index. However, its market value and stock price performance have recently faced severe challenges. Burberry recently issued a profit warning due to the slowdown in overall demand in the luxury goods industry and the failure of the brand's own revitalization strategy. The stock price has fallen by more than 73.9% from its all-time high on April 25, 2023, especially by about one-third in the past three months, and fell by more than 3% in Tuesday trading. Currently, Burberry's market value is about 2.5 billion pounds (about 3.3 billion U.S. dollars), which is far below the level required to maintain within the FTSE 100 index.

In a recent statement, FTSE Russell raised the possibility that Burberry shares could drop into the FTSE 250 during the quarterly rebalancing in September, based on current market capitalization rankings. According to FTSE Russell guidance, any stock ranked 111th and below by market capitalization at the time of rebalancing will be removed from the FTSE 100 index, while stocks that rise to 90th and above by market capitalization may be added. Burberry has been a fixture on the FTSE 100 since September 2009, but that position may now be in jeopardy.

Meanwhile, FTSE Russell also mentioned that other companies, such as EasyJet Plc, may also be at risk of being downgraded from the FTSE 100 index. However, easyJet's market capitalization ranking has improved thanks to a rebound in its share price on Tuesday, and it is likely to remain in the final list. The final adjustment results will be based on the stock price on September 3 and will be announced after the European market closes on September 4. In addition, insurer Hiscox Ltd and Tritax Big Box REIT Plc are likely to upgrade from the FTSE 250 to the FTSE 100.

For Burberry, exiting the FTSE 100 index not only means a decline in its market position, but also may affect the position adjustment of tracking funds, because these funds usually buy stocks in the index to maintain consistency. As the final adjustment approaches, market participants will need to pay close attention to further developments in the share prices of Burberry and other related companies.

Burberry is not an exception, the luxury goods industry is in an obvious downward trend

On July 24, 2024, French luxury goods giant LVMH Group released its first half performance report. The report shows that in the six months ended June 30, the group's sales dropped slightly by 1% year-on-year, reaching 41.677 billion euros, equivalent to approximately 328.764 billion yuan in RMB. Despite facing global economic uncertainty, LVMH Group highlighted an organic growth rate of 2% on its official website, believing that this shows that the group has maintained the stability of its business in an unstable environment.

In the second quarter of 2024, LVMH Group’s sales achieved an organic growth of 1%, reaching 20.983 billion euros. Although this growth rate is lower than the 3% in the first quarter, it is compared with the 15% year-on-year growth in the first half of 2023, and the 28% year-on-year growth achieved in the first half of 2022 even when the Chinese market was seriously affected by the epidemic. The comparison shows that the luxury goods market is going through a period of adjustment.

Of particular note is the fact that the wine and spirits division's sales in the first half of 2024 fell by 12% year-on-year to 2.807 billion euros. Although the decline narrowed from the 16% decline in the first quarter, the unit's performance was still the weakest among the five business units.

Revenue from the fashion and leather goods division, the main source of the group's revenue, fell 2% year-on-year to 20.771 billion euros, the same as the first quarter's decline. Jean-Jacques Guiony, chief financial officer of LVMH Group, pointed out that although the sales performance of high-end ready-made clothing is better, the sales growth of handbags and entry-level products is not ideal.

The division covers the flagship businesses of brands such as Louis Vuitton, Dior and Fendi, with product lines ranging from entry-level handbags to advanced customization, and is the pioneer of the group's global expansion. However, when the purchasing power of the middle class is challenged and brands frequently raise prices, even marketing strategies targeting high-net-worth customers cannot fully compensate for the impact of the loss of middle-class consumers.

Follow us

Find us on Twitter, Instagram, YouTube, and TikTok for frequent updates on all things investing.

Have a financial topic you would like to discuss? Head over to the uSMART Community to share your thoughts and insights about the market! Click the picture below to download and explore uSMART app！

Important Notice and Disclaimer:

We have based this article on our internal research and information available to the public from sources we believe to be reliable. While we have taken all reasonable care in preparing this article, we do not represent the information contained in this article is accurate or complete and we accept no responsibility for errors of fact or for any opinion expressed in this article. Opinions, projections and estimates reflect our assessments as of the article date and are subject to change. We have no obligation to notify you or anyone of any such change. You must make your own independent judgment with respect to any matter contained in this article. Neither we or our respective directors, officers or employees will be responsible for any losses or damages which any person may suffer or incur as a result of relying upon anything stated or omitted from this article.

This document should not be construed in any jurisdiction as constituting an offer, solicitation, recommendation, inducement, endorsement, opinion, or guarantee to purchase, sell, or trade any securities, financial products, or instruments or to engage in any investment or any transaction of any kind, nor is there any intention to solicit or invite the purchase or sale of any securities.

The value of these securities and the income from them may fall or rise. Your investment is subject to investment risk, including loss of income and capital invested. Past performance figures as well as any projection or forecast used in this article is not indicative of its future performance.

This advertisement has not been reviewed by the Monetary Authority of Singapore