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European luxury is experiencing a challenging 2024 to say the least. On the one hand, in this type of market, where customers must shell out significant amounts of money for exclusive products while the cost of living continues to skyrocket, the demand is increasingly higher. On the other, the practice of major brands has been to market new, high-profile products while significantly increasing retail prices. Specifically, major luxury companies have increased prices by 33% on average since 2019, according to RBC estimates.
In this sense, Carole Madjo, head of European luxury goods research at Barclays, points out that “investors are concerned that price increases may have discounted or alienated consumers and that brands have limited growth levers in the market.” short term”. For now, the global numbers suggest a sector at an inflection point. After growing close to 20% in 2022, it stabilized with a 4% rebound in 2023, going from 349 billion euros to 362 billion euros, according to data from the consulting firm Bain, which expects a “relatively soft” performance of the assets. personal luxury goods in 2024, in the low to mid-single digit range, in a year seen to have significantly reduced the number of buyers who can afford expensive designer items.
Micro and macroeconomic challenges
Added to this are the disappointing performances and growth prospects by some firms that point to the slowdown. Furthermore, for many the sector is starting to get expensive. So far, luxury giants have benefited from the resilience of their wealthy customers in the face of rising prices. But it seems that consumers and investors in the sector are increasingly concerned about its prospects and the former are thinking twice before buying products and the latter actions.
From the more macro side, the disappointing post-pandemic recovery in China and faltering sales in the United States They haven’t helped either. And, after a 2023 in which China’s decision to allow more normal activity and dismantle its strict COVID-19 restrictions provided another boost to a sector that was already beginning to falter, this year, with an expected drop in profit expectations and inflation that does not make it easy for these or other companies, it does not seem that the sector will experience an easy second half of the year. In this sense, a Bain & Company report indicates that in 2024 China’s luxury market will maintain a similar trend to that of 2023, which may lead to a “mid-digit growth” rate. Coincidentally, Barclays analysts also believe global luxury goods sales will slow to mid-single percentage points this year from 9% in 2023.
Hermes, the only one with double-digit revaluation and potential
With all this, it is not unusual for European luxury stocks to be volatile in 2024. Thus, the main stocks have experienced a slowdown in their growth in their first quarter earnings results, although these brands showed variable growth patterns.
From the stock market side, the STOXX Europe Luxury index, which groups ten companies in the luxury sector –LVMH, Richemont, Hermes, Kering, Ferrari, EssilorLuxottica, Moncler, Burberry, Christian Dior and Brunello Cucinelli, remains positive in the year with increases of 9.8%. However, the increases are mainly due to the first quarter of the year, since since March the trend has been clearly downward.
If we look value by value, Richemont is he title that earns the most in the stock market so far this year, with double-digit sums that reach 27%, although it should be noted that it has a very limited potential, of just over 5%. On the other side, Burberry is the luxury company that is doing the worst with cuts that are close to -28%.
Due to the possible stock market performance in the next twelve months, if we take into account the opinion of the Reuters consensus, LVMH ranks first among these ten stocks for potentialwith sums that could reach 20.4% if the French multinational conglomerate reaches the 885.44 euros that it gives as a target price for its shares.
However, if we combine both criteria, revaluation and double-digit potential, only one value meets it: Hermeswith annual increases of 11.1% and medium-term growth of 12.7%.
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