Luxury Market Slowdown: Gucci and LVMH Earnings

The post-pandemic spending spree on designer handbags and high-end fashion has officially hit a wall. For years, luxury giants seemed immune to economic gravity, but recent earnings reports from industry leaders LVMH and Kering (the parent company of Gucci) paint a different picture. We are seeing a distinct pullback in spending, specifically driven by the exit of the “aspirational shopper” from the luxury marketplace.

The Big Miss: LVMH Earnings Recap

LVMH Moët Hennessy Louis Vuitton is often viewed as the bellwether for the entire luxury sector. Because they own 75 distinct houses—including Louis Vuitton, Dior, Tiffany & Co., and Sephora—their performance usually indicates the health of the global high-end economy.

In the third quarter of 2024, LVMH reported revenue of roughly €19.08 billion ($20.8 billion). While this is a massive number, it represented a 3% fall in organic revenue. This missed analyst expectations and signaled the first quarterly decline since the pandemic disruptions of 2020.

The breakdown of this decline reveals where consumers are cutting back:

  • Fashion & Leather Goods: This division, home to Louis Vuitton and Dior, saw organic sales fall by 5%. This is significant because this division typically accounts for half of the group’s revenue and the majority of its profits.
  • Wines & Spirits: This sector was hit hardest, with a 7% drop. Hennessy cognac has struggled significantly in both the United States and China.
  • Watches & Jewelry: Sales in this category dropped by 4%, affecting brands like Tiffany & Co. and Bulgari.

Gucci’s Struggles and Kering’s Warning

While LVMH is seeing a slowdown, rival group Kering is facing a much steeper decline. Kering relies heavily on Gucci for its operating profit, and the Italian brand is currently in the middle of a difficult turnaround effort.

Kering’s third-quarter revenue fell 15% to €3.79 billion. The specific numbers for Gucci are stark:

  • Gucci Sales: Revenue for the flagship brand plunged 26% on a comparable basis in Q3.
  • Profit Warning: Following these results, Kering warned investors that its 2024 recurring operating income could be approximately €2.5 billion. This would be roughly half of what they reported in 2023.
  • Other Brands: It was not just Gucci. Saint Laurent saw sales drop 13%, indicating a wider systemic issue within the group’s portfolio.

The Retreat of the Aspirational Shopper

The primary driver behind these slumping numbers is the behavior of the “aspirational shopper.”

These consumers are not ultra-high-net-worth individuals. They are middle-class or upper-middle-class buyers who might save up to buy a Louis Vuitton Neverfull bag, a Gucci belt, or a pair of Balenciaga sneakers. During the post-COVID boom, accumulated savings and “revenge spending” drove this demographic to buy luxury goods at record rates.

Now, several factors have forced these buyers to close their wallets:

  1. Inflation and Cost of Living: High prices for essentials like rent, food, and energy have reduced disposable income.
  2. Price Hikes: Luxury brands have aggressively raised prices over the last three years. A classic Chanel flap bag, for example, now rivals the price of a Hermes Birkin. These hikes have priced out many entry-level customers.
  3. Economic Uncertainty: Fears of recession in the US and Europe make spending $2,000 on a handbag feel risky rather than rewarding.

While the ultra-rich (the top 1% of clients) continue to spend, there are simply not enough of them to offset the loss of volume from the millions of aspirational buyers pulling back.

The China Factor

For the past decade, China has been the engine of growth for the luxury world. However, the anticipated economic rebound in China has not materialized as expected.

LVMH reported that sales in Asia (excluding Japan) tumbled 16% in the third quarter. Consumer confidence in China is currently at historic lows due to a shaky real estate market and high youth unemployment. Without the Chinese consumer buying luxury goods abroad (in Paris or Milan) or at home, growth for European luxury houses is severely capped.

Japan remains the only bright spot in the region. A weak yen has driven a tourism boom, leading to double-digit growth for many brands as tourists flock to Tokyo to buy luxury goods at a favorable exchange rate.

Contrast with Hermes

It is important to note that not every luxury brand is suffering equally. Hermes reported an 11.3% rise in sales during the same period where LVMH and Kering stumbled.

This divergence highlights a “flight to quality.” Hermes restricts supply heavily (specifically with Birkin and Kelly bags) and targets a client base that is largely insulated from economic downturns. Their customers are less likely to be aspirational buyers and more likely to be collectors who view the items as investments. This suggests the market is not dead, but it is becoming incredibly selective.

Outlook for 2025

The era of easy growth for luxury fashion is over. Brands can no longer rely on simply raising prices or opening more stores to drive revenue.

Moving forward into 2025, companies like LVMH and Kering will likely focus on:

  • Cost Control: Kering has already announced measures to streamline operations.
  • Exclusivity: Brands may reduce inventory to avoid discounting, which damages brand equity.
  • Experience: Shifting focus from selling products to selling experiences (like hospitality) to court the highest-spending clients.

Frequently Asked Questions

Why are Gucci sales dropping so much? Gucci is currently in a transition period with a new creative director, Sabato De Sarno. His designs are more minimalist compared to the previous maximalist look. It takes time for new collections to gain traction. Additionally, Gucci is highly exposed to the aspirational shopper, a demographic that has stopped spending due to inflation.

Did LVMH lose money in 2024? No, LVMH did not lose money. They are still generating billions in profit. However, their growth has turned negative. Revenue in Q3 2024 fell by roughly 3%, which is a rare decline for a company that typically sees double-digit growth.

Who is the aspirational luxury shopper? This term refers to consumers who do not regularly buy high-end luxury goods but will occasionally purchase entry-level items like perfumes, small leather goods, or branded t-shirts. They are sensitive to economic changes and price hikes.

Is the luxury market crashing? It is more of a correction than a crash. After three years of abnormal, explosive growth following the pandemic, the market is normalizing. However, brands that lack a distinct identity or rely too heavily on the middle class (like Burberry and Gucci) are facing a crisis, while top-tier brands like Hermes remain stable.