Fashion Giants Face Unprecedented Downturn Amid Shifting Consumer Tastes

The global fashion and luxury goods industry, valued at £370 billion, is experiencing a significant downturn, with major brands like Gucci and LVMH reporting anemic growth. Industry executives and analysts suggest that a 40-year-old playbook is no longer effective, as a new generation of consumers redefines the market.

The balance sheets of prominent brands reflect a loss of control over the core equation of creativity, exclusivity, and price. LVMH, home to Louis Vuitton and Dior, has seen its market capitalization drop by more than half from its 2023 peak to approximately £175 billion. Collectively, Europe’s ten largest listed luxury companies have lost over £130 billion in market value in the past year.

Financial analysts attribute part of the downturn to brands becoming overly aggressive with pricing. Post-pandemic "revenge spending" was met with significant price hikes, alienating a substantial customer base. In France, prices for iconic luxury items have surged over 50 percent since 2019, according to HSBC. Management consultancy Bain & Company estimates that between 2022 and 2024, approximately 50 million consumers exited the luxury goods sector in protest.

Critics also point to a decline in creativity, driven by the relentless pressure for quarterly sales growth. Designers are reportedly playing it safe, focusing on generic items differentiated mainly by logos, a sentiment echoed by industry figures like Miuccia Prada, who described fashion as becoming "more and more conservative."

This perceived stifling artistic environment is prompting designers to explore collaborations with high-street retailers. Victoria Beckham is working with Gap, Stella McCartney with H&M, and John Galliano has partnered with Zara. Clare Waight Keller, formerly of Givenchy, is now the global creative director for Uniqlo.

External factors have also impacted the industry. Trade tariffs imposed by former President Donald Trump have increased luxury goods prices in the U.S. market. Geopolitical instability, including conflicts in the Gulf and sanctions on Russia, has affected spending in key regions. Chinese consumers, long a driver of luxury growth, have reduced spending due to Beijing's encouragement of domestic consumption. Additionally, unseasonably high temperatures have reduced foot traffic in prime European shopping districts.

In response, some companies are recalibrating their strategies. Luca de Meo, CEO of Kering, which owns Gucci and Saint Laurent, plans to close at least 250 stores globally by 2030, with half of these being Gucci boutiques. Kering also sold its beauty division to L'Oréal for £3 billion and has reduced prices on some items, making the Gucci Mercato Tote Bag an estimated 20 to 25 percent cheaper than last year. These measures have contributed to Kering's first positive organic growth in three years, though Gucci's overall sales remain subdued.

Burberry's CEO, Joshua Schulman, has also implemented price cuts, reduced the workforce by one-fifth, and refocused the brand on its British heritage, leading to a faster recovery than Gucci. Burberry reported an operating profit of £115 million for the year to March, a significant improvement from a loss the previous year.

Chanel has seen success with new designer Matthieu Blazy, with sales up 16 percent in the first half of the year due to strong demand for his designs. Ralph Lauren has also experienced a 13 percent sales increase after reducing discounts. Zegna, Brunello Cucinelli, and Prada Group, particularly its Miu Miu brand, are also reporting growth, with Paul Smith noted for maintaining stable prices.

The shift towards high-street collaborations is proving beneficial for retailers like Gap, which saw sales surge by ten percent in the second quarter, leading to a 15 percent jump in its shares. "The high street has never been more relevant for top designers," commented Achim Berg, founder of FashionSights.

Conversely, ultra-fast fashion brand Shein, once popular for its low prices, has faced challenges, including higher import duties and the expansion of budget chains like Zara's Lefties. Shein's valuation on the Hong Kong stock exchange was significantly lower than anticipated.

LVMH continues to face challenges, with its largest division, fashion and leather goods, growing by only one percent in the second quarter. Despite some positive reports on its Dior and Loro Piana brands, market performance suggests continued investor caution.

The slowdown, coupled with reports of internal family dynamics at LVMH, prompted CEO Bernard Arnault to address allegations on social media, refuting claims of fostering rivalry among his children.

Other brands like Versace, now under Prada's control, and Dolce & Gabbana, burdened by debt, are also navigating difficult market conditions. Retailers such as Harvey Nichols and Saks are restructuring due to declining sales and high borrowing costs. Harvey Nichols was recently acquired by Mike Ashley for a reported £43 million after entering administration with significant debts.