burberry Reports Fiscal Year 2024 Results
On May 15th, the British luxury group burberry released its financial results for fiscal year 2024. As of March 30th, revenue decreased by 4% year-over-year to £2.968 billion, and adjusted operating profit plummeted by 34% to £418 million.
In the fourth quarter of fiscal year 2024, Burberry experienced negative comparable sales growth in its three major regions: Asia Pacific, EMEIA, and the Americas. Comparable store sales in the Asia Pacific region dropped by 17%, with mainland China seeing a 19% decline.
Widespread Pressure in the Luxury Industry
Burberry is not alone in its struggles; multiple luxury brands' financial reports indicate the industry is under significant pressure. The era of high growth for top-tier luxury brands is ending, and some second-tier luxury brands are experiencing declines. The industry's prolonged wave of price increases is now facing growth challenges, particularly in the Chinese market.
In April, Kering Group released its first-quarter report for fiscal year 2024, showing a sales decline of 11% year-over-year to €4.504 billion. Core brand gucci's revenue dropped by 21% to €2.079 billion. Brands like SAINT LAURENT and Bottega Veneta also reported varying degrees of sales declines.
In the Asia Pacific region, where the Chinese market is located, gucci's sales dropped by 28%, the most significant decline among all regions. Kering Group expects recurring operating income to drop by 40% to 45% in the first half of 2024.
Even Hermès, which has been outperforming in the luxury market, is experiencing slowed growth in China. In the first quarter, Hermès reported consolidated revenue of €3.805 billion, up 17% year-over-year. However, the Asia region (excluding Japan) saw a 14% increase, down from 23% in the same period last year.
LVMH also faced challenges. In the first quarter of 2024, LVMH reported a 6% decline in organic sales in Asia (excluding Japan), the only region with negative growth during the reporting period.
Chinese consumers' waning enthusiasm for luxury goods is also reflected in the performance of high-end shopping malls. According to Swire Properties' first-quarter data, retail sales at Beijing's Taikoo Li Sanlitun, Beijing's INDIGO, Guangzhou's Taikoo Hui, Shanghai's HKRI Taikoo Hui, and Chengdu's Taikoo Li fell by 5.4%, 2.4%, 9.2%, 19.4%, and 14.7%, respectively.
Luxury brands are also becoming more cautious about opening new stores. According to the latest research from Savills, the number of new luxury stores worldwide decreased by 13% in 2023. Although China remains a crucial market for luxury brand expansion, the number of new stores still dropped by 12% year-over-year.
Reasons Behind the Luxury Market Slowdown
The global luxury market's downturn is primarily driven by economic conditions. Zhou Ting, president of the Yaoke Research Institute and a luxury goods expert, stated that the high-spending demographic lacks confidence in the future, and ordinary consumers are financially constrained. The luxury industry has entered a stage of stock competition, with limited short-term incremental consumption from the general public. The key to competition lies in maintaining and increasing consumption among high-end consumers.
She pointed out that the reasons for the sluggish performance in the Chinese luxury market are more complex, including the resumption of outbound travel leading to luxury consumption abroad, excessive price increases by luxury brands, the rise of high-end niche brands and designer brands, and the emergence of Chinese high-end brands capturing some of the market share from international luxury brands.
LVMH mentioned in its first-quarter report that sales in the Asia Pacific market fell mainly due to the resumption of offshore travel. Multiple media outlets also reported that Chinese tourists flocked to Japan to buy luxury goods due to the yen's record low exchange rate.
Fashion analyst Tang Xiaotang from No Agency noted that the numerous price hikes in the luxury goods industry have driven away potential consumers. After multiple price increases, some brands' prices have deviated from their brand value, prompting capable consumers to choose higher-value luxury brands.
Future Outlook
Rational consumption is becoming more apparent in the Chinese luxury market. According to the Yaoke Research Institute's "2023 China Luxury Goods Report," the VIC (very important client) group in China has entered a stage of comprehensive cost-effectiveness, measured by brand value, product value, and service value.
Zhou Ting believes that the Chinese luxury market will recover in the second half of the year. However, the trend of brand diversification is inevitable. High-end niche brands, designer brands, Chinese intangible cultural heritage brands, and haute couture brands will gradually play a more significant role.
