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[timesofinnovation]

In today's ever-changing luxury market, Hermès is encountering significant challenges that threaten to shake its long-standing reputation for resilience. The iconic Birkin bag maker is projected to report its weakest quarterly revenue growth since late 2021 when it releases third-quarter sales figures this Thursday. Industry analysts are closely watching this development, as it may indicate a broader trend affecting luxury brands globally. Traditionally, Hermès has held a strong position, even as its competitors faltered amid economic turbulence. Deborah Aitken, a Bloomberg Intelligence analyst, emphasizes that Hermès' ability to maintain consumer loyalty and premium pricing is now facing its most considerable test in recent years. Despite outperforming major brands like LVMH and Burberry in the previous quarter, recent trends suggest that even Hermès cannot remain unaffected by prevailing economic indicators. Given the latest forecasts, analysts estimate that Hermès' organic sales growth could reach approximately 10.5 percent this quarter, a figure Aitken describes as possibly "optimistic." The slight dip in growth is particularly noteworthy compared to last year's robust performance, where the brand saw significant increases in revenue. This softening suggests that the demand for luxury items might not be as buoyant, especially within critical markets like China. Recent insights from UBS analyst Zuzanna Pusz indicate a pronounced decline in luxury consumption in China, where purchasing confidence has plummeted to levels reminiscent of the pandemic's peak. This shift is critical for Hermès, as it has historically relied on the Asian market—particularly the Asia-Pacific region, excluding Japan—for much of its growth. Expectations indicate that organic revenue growth in this area may have declined to 2.3 percent from 10.2 percent in the same quarter last year. While Hermès’ situation appears challenging, it’s essential to recognize the nuances of its business model. The brand has carved out a unique niche with its exclusive product offerings and a dedicated customer base. This loyalty could protect it better than its competitors against a downturn in volume-driven categories like silk and textiles, which are projected to see declining sales in the current market climate. Alphavalue analyst Jie Zhang notes that Hermès is expected to sustain its status as a leader among luxury brands due to unyielding demand for its quintessential handbags and its selective client demographics. This unique positioning may insulate Hermès to some extent from the broader market’s woes, allowing it to achieve double-digit sales growth nonetheless. Furthermore, amid these market shifts, the company is not merely resting on its laurels. Hermès is expected to introduce new designs and pricing strategies that could compensate for declines in traditional categories. The long-standing practice of maintaining exclusive waiting lists for its most coveted products only strengthens its allure in a tightening market. In terms of financial strategies, some analysts, including those from BNP Paribas Exane, have resumed "outperform" ratings on Hermès' stock. Their assessments are rooted in the company's robust business model and its historical resilience, which they argue can weather current downturns in the luxury sector. Indeed, Hermès' situation reflects a broader conversation within the luxury market about innovation and adaptability. As brands pivot to meet shifting consumer preferences and economic realities, luxury firms must find innovative ways to maintain relevance without compromising their core values. As we anticipate Hermès’ upcoming sales figures, it’s crucial to observe how consumer sentiment evolves, especially in influential markets. While challenges loom, the brand's strong heritage may allow it to navigate the fiscal storms ahead better than many of its peers. As Hermès prepares to unveil its latest performance metrics, the luxury industry is on alert.

Will it continue to uphold its reputation as a bastion of luxury, or will it succumb to the pressures that have begun to weigh heavily on its competitors? Only time will tell, but one thing is certain: the luxury market is watching closely.

[timesofinnovation]

The luxury market in China is facing a significant challenge as grey and second-hand markets continue to expand. With rising prices from high-end brands and a slowing economy, many consumers are turning to alternative ways to purchase luxury goods, a trend that is becoming increasingly pronounced and alarming for established luxury brands such as LVMH. LVMH, the world's leading luxury group, has recently reported a 3% decline in quarterly sales—a concerning figure that missed analysts' expectations and marked the first drop in quarterly sales since the pandemic began. The demand in key markets like China and Japan has weakened considerably, prompting industry experts to scrutinize the implications of this shift. Not only LVMH is feeling the impact; Italian fashion house Salvatore Ferragamo has also reported a decline in revenues, as the slowdown in demand from China contributes to widespread uncertainties across the luxury sector. According to Max Piero, CEO of luxury intelligence consultancy Re-Hub, a major factor driving consumers towards the grey market is the persistent price gap between luxury items in China and countries abroad. He noted, "As long as these price gaps exist, price-sensitive consumers will explore the grey market for better deals." The grey market, which is estimated to be worth approximately $57 billion annually, has flourished thanks to platforms like DeWu. These platforms allow consumers to purchase luxury products sourced internationally at significant discounts—typically ranging from 20% to over 50% off retail prices found in China’s flagship stores. Re-Hub's findings indicate that sales on DeWu across 48 brands increased by 19% year-on-year in the second quarter, reaching over 7 billion yuan (around $984.4 million). In the context of a broader economic landscape, Chinese retail sales expanded by just 3.2% in September— this subdued growth raises concerns for global luxury brands, which derive about 25% of their revenues from the Chinese market. As a result, luxury companies are compelled to rethink their pricing strategies and the value they provide to consumers. Rising prices are indeed a key reason for the burgeoning interest in second-hand luxury goods, according to Yi Kejie, a 28-year-old marketing content manager and luxury consumer. She notes, “More consumers are turning to the secondary market primarily because new luxury items have become increasingly expensive.” In light of recent quarterly sales figures, LVMH's executives defended their premium pricing strategy and asserted that they do not plan to introduce new budget-friendly product ranges. They maintain that their distribution channels are tightly controlled, aiming to shield their brands from the burgeoning second-hand market. However, it is evident that the second-hand luxury sector is also being fueled by economic pressures, as consumers seek to monetize their luxury collections in a tightening economy. Zhu Tainiqi, founder of the second-hand luxury goods marketplace ZZER, observed a rapid increase in sellers, many of whom are new to the resale of luxury goods. He explains, “The number of sellers is growing really fast, and most of them are selling luxury items for the first time. Yet the buyer’s side remains quite stable." Consequently, average purchase prices have decreased compared to last year, with order values dropping by around 10%. Despite this trend, brands such as Louis Vuitton and Coach still enjoy robust sales. According to consultancy iResearch, the second-hand luxury market in China, which includes platforms such as Plum, ZZER, and Alibaba-owned Xianyu, has experienced a compound annual growth rate of over 30% since 2020. Nonetheless, Zhu estimates that the sector is likely to grow around 20% this year due to the current economic climate. Interestingly, some consumers who are transitioning to second-hand and grey market goods still purchase new luxury items, albeit with a portion of their budget allocated to these more affordable market segments.

Zhu highlights that when consumers see a particularly attractive deal and trust the authentication process of the items sold, they are happy to make purchases in the secondary market. In summary, as grey and second-hand markets flourish amidst price increases and economic stress, luxury brands must adapt to this changing landscape. The pressures intensifying in the Chinese luxury market signal that major brands need to rethink their pricing strategies and perhaps reconsider the demographic of their consumer base to maintain market relevance.