Everything you need to know about the financial results of luxury brands BoF Professional, The Week Ahead
THE CHEAT SHEET
Measuring the impact of the pandemic on luxury
- LVMH reports financial results on Monday, followed by Kering, Prada, Hermes and others
- Sales fell during their worst quarter ever. Only the strongest and largest brands remain profitable
- Investors will look for updates on the pace and scale of a recovery, especially in China
Here’s how you know the pandemic was an unprecedented disaster: when sales data from the peak shutdown period came in this week, even the strongest luxury groups, LVMH and Kering, were unable to avoid a sharp drop.
Rather than focusing on the damage already done to the numerous luxury brands reporting quarterly results this week, investors will analyze executives’ comments for the scale and pace of recovering sales in mainland China, and their prospects for gauge the rest of the country. years.
At LVMH, flagship brand Louis VuittonGrowing e-commerce business, high margins and focus on accessories give the group an edge over rivals. This also applies to a strong brand momentum at Christian Dior. But the group has its own unique vulnerabilities, including Sephora, the second largest unit, which has a strong online business, but is likely to see weak foot traffic in its main US market. LVMH’s travel activities, including airport vendor DFS and hotel chain Belmond, are also suffering.
As the largest and most diversified luxury group, any forward-looking comment from LVMH on luxury recovery opportunities is likely to affect sentiment in the industry.
Search Kering for clues to underlying trends at Gucci, which made up more than three-quarters of group profit last year. The brand was already showing signs of growth slowdown after a notable run under designer Alessandro Michele and Chief Executive Marco Bizzarri. Investors are looking for reassurance whether the brand’s maximum reboot will retain its appeal with consumers. They will also see if Bottega Veneta’s resurgence can survive the pandemic. Were customers who could not leave their home saddlebags?
Smaller independent brands will be further scrutinized. While Kering and LVMH likely made gains in the first half of the year, analysts Prada expect, Monclerand Ferragamo to record losses.
Of the three, Prada remains one to watch. Even amid hefty losses, the company is sticking to its plan to rule out end-of-season discounts in its main stores. It’s a confident move that could mean the company is feeling good about its recovery prospects and underlying brand heat as it prepares for Raf Simons to join as co-creative director.
Of the independents, only HHermès, long known as the fashion industry’s most defensive company in a crisis, will make a profit. The demand for Birkin and Kelly’s hand-stitched handbags has long outstripped supply. So even when the global economy came to a halt, the sought after pieces will still have found buyers. Scarves and ties, which are doing good business at now empty airports, probably did less well.
A word of warning: companies across the industry continue to preach the spectacular growth rates they see in mainland China. While that is a positive sign, it will not be enough to make up for all Chinese spending customers are not do on shopping trips abroad.
It comes down to: Profit for the first half of the last century will be catastrophic for luxury fashion houses, but no one will be surprised. The bigger question is whether these companies will treat the pandemic as a one-off shock or as a long-term problem requiring structural changes.
Robert Williams contributed this article
Why Fenty Beauty enters skincare
- RihannaAn offshoot of LVMH-backed Fenty Beauty, Fenty Skin will launch on July 31
- Little is known about the line, which was confirmed in an Instagram post earlier this month
- Skin care has grown faster than cosmetics and their sales in recent years surpassed makeup for the first time ever during the pandemic
Fenty Beauty set the bar for new makeup brands. But makeup is a market in decline; skincare is undeniably the place to be right now. It was a red-hot market when Rihanna first released a trademark of Fenty Skin last year, and it’s only gotten hotter during the pandemic, when consumers want glowing skin but not necessarily a full face of makeup. up, for their daily endless series of Zoom calls. Of course, there is no guarantee that a beauty brand that has conquered one market will achieve success in another (Glossier discovered this last year when the new maximalist line, Glossier Play, failed to find an audience. It was discontinued earlier this year).
We get a better idea of Fenty Skin’s prospects when it hits the shelves of Sephora this week. There hasn’t been much hint of the kind of category-disruptive messages that accompanied the launch of Fenty Beauty. An Instagram post in which Rihanna says “I worked on it @fentyskin for more than 2 years perfecting formulas and making packaging that is good for our planet! May have been written about any brand recently released. The inclusive marketing that propelled Fenty Beauty has also become the norm, with numerous new entrants following in Rihanna’s footsteps.
It comes down to: Skin care is growing fast, but it is also becoming an increasingly busy market. Fenty Skin will have to bring something new to the table.
Disclosure: LVMH is part of a group of investors who together have a minority interest in The Business of Fashion. All investors have signed the shareholder documentation that guarantees BoF’s full editorial independence.
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