Walk around any luxury mall or designer shopping street, browse in any shop and all may be calm. Behind the scenes, though, the mood is anything but.
In top-end fashion right now, turmoil rages. The industry is experiencing rare turbulence, a shakedown, that promises several twists and turns, and is likely to have a considerable distance still to run.
Even before Donald Trump’s tariff shock, the sector that had enjoyed a heady ascent in recent years was suffering tougher times. Dwindling tourism numbers and consumer spending in Europe, US and Japan were hitting the industry.
CEO of Equite
Within that line-up, the most significant blow came from Japan, where Chinese visitors and their credit lines declined. China’s property crash is squeezing the burgeoning domestic middle-class and with that, their other borrowings and holidays. A popular travel destination had been the country’s Asian neighbour and, thanks to a favourable exchange rate and tax-free shopping, its smart fashion boutiques. When the currency gap also narrowed, China’s tourists and their thirst for the world’s most desirable brands dropped.
Japan still represents good value versus China. Analysts at the Bank of America reckon luxury products remain about 7 per cent cheaper overall in Japan than in China, but this is down from 11 per cent a month ago. For some items, buying them in China now costs less than in Japan. They cite a Moncler down jacket and Cartier ‘love’ bracelet priced at 2 per cent-3 per cent below Japan, while, for Vuitton and Dior, they estimate Japan continues to afford an 8 per cent discount, but that is falling.
Given the slower recovery from Covid compared with other parts of the world, the bounce back in Chinese trade was a vital factor in the global luxury labels’ recent boom. China's outbound seats on planes to Japan had been steadily improving and in January this year, they recovered to pre-pandemic levels for the first time. That traffic has now dropped off again.
All this before the new US President injected major uncertainty and volatility into the world’s equity, capital markets and economies, provoking a possible trade war and causing consumers to think twice before journeying overseas unnecessarily and splashing out on that long-coveted handbag or watch.
While high-end products have weathered previous storms well – a paper from one London consultancy went so far as predicting Covid would spell the end for 'bling', something that simply did not happen – they are not immune.
Until people can estimate with a degree of probability what the future holds, whether their job prospects, for instance, will increase or decrease, most sectors will continue to be adversely affected. In fashion that means there will be sales but they may not be so great as latterly and are not on the rise.
Viral frenzy
The Trump onslaught has come as a wave of viral TikTok videos proclaiming ‘Made in the USA’ has thrown a spotlight on how place of origin can be manipulated. In practice, the goods are actually ‘Made in China’ – items are manufactured there and shipped to the US where the USA label is added and they are repackaged. The Chinese producers are seemingly scamming Americans into buying directly from China after all.
The trending output reveals how the heat is being turned up between the two global trading giants. There's another truth as far as makes and models are concerned. The subject matter is amusing and enticing to watch, while there is also trade in fakes. Nevertheless, they are causing further headaches among big-brand management, leading to the hasty issuing of statements declaring how their products are made entirely where the label states.
Information in the clips are not always false. Such is the nature of globalisation and complex supply lines that part of a product may well originate in China – in a woollen jacket, for example, the yarn of the sleeves can be sourced overseas, dyed and knitted abroad, shipped and put together with the rest of the garment in the US or France and given a ‘Made in the USA’ or ‘Made in France’ designation. The law is grey, stating only that the "last substantial transformation" should occur in the US or France to qualify for that designation. Gucci, Louis Vuitton and lululemon are among those rushing to publish denials of the TikTok streamers.
To add to the confusion, posts and articles have appeared urging those opposed to Trump to retaliate by deliberately purchasing a foreign-made replica. Social media is having a field day. On the tit-for-tat goes on.
As if that was not sparking enough tension in boardrooms and among investors, there has been an outbreak of doubt and upheaval at some of the leading houses themselves. Hermes, maker of the iconic Birkin bag, has overtaken LVMH, owner of Louis Vuitton, Dior and numerous exclusive names, as the world’s most valuable luxury group.
On paper, it’s because LVMH has endured a 3 per cent sales decline while the market worth of its French arch-competitor, Hermes, has roared ahead. LVMH has grown substantially, adding subsidiaries and opening outlets. Rapid expansion of that sort requires careful handling and not every one has performed to standard. Those add-ons, which inevitably have been expensive, coincided too with the gathering squall. Once the universal king, LVMH has not been able to bask in its majesty.
Part of the relative decline and rise is due to a trend. A Bain report highlights how customers are putting greater weight behind trust and value. Younger, wealthy Gen Z and millennial clients may have money but they are also price-conscious and digitally savvy. They can compare and contrast, and examine in detail, and they love doing so. LVMH was pushing up its prices, arguably without a commensurate uplift in quality – it was about forcing margin.
Hermes on the other hand, did not go down that route, and has reaped the rewards, say industry experts.
That dividend also came from Hermes choosing to limit quantity and not pursue volume on some of its most in-demand lines. Those browsers can see that second-hand prices will often exceed the new, making them prepared to spend and, as they regard it, invest.
Saying that, the sector is braced for an LVMH fight back. It is and was a hugely successful, well-run empire, the best in class, and that has not been lost and is recoverable. Daniel Lanier, chief executive of Equite and adviser to luxury brands, says what we’re witnessing is an evolution. He fully expects LVMH to adapt and to thrive, with a new emphasis, as he puts it. "Scarcity, fairness in pricing and emotional desirability are the currencies of extreme value, with relevance to the next generation of luxury clients being key," he said. "LVMH’s legacy and capabilities remain extraordinary but even at the very top the need to elevate is unrelenting."
New kings
Already, changes are afoot. Jonathan Anderson has left Loewe, where he was creative director, to become artistic director of Dior Homme. Anderson, from Northern Ireland, was at Loewe for 11 years and responsible for the smaller Spanish firm’s rapid climb, identification with humour and use of big-name fans as ambassadors, such as Jamie Dornan and Josh O’Connor.
As JW Anderson, he has collaborated with the youth-focused retailer Uniqlo since 2017, producing distinctive ranges of fashion staples, such as Oxford shirts, chinos and blazers with its textile AirSense material.
It was also Anderson, well-known for his love of innovation, who created Rihanna’s Super Bowl half-time performance outfit and Ariana Grande’s 2024 Met Gala gown. His debut collection will be unveiled at Paris Fashion Week in June.
His move follows doors revolving elsewhere. Among the most eye-catching moves and another signal of change was that of Balenciaga’s creative dynamo, Demna, to Gucci. Both Italian houses belong to another French conglomerate, Kering. It’s going for proven success – Georgia-born Demna took Balenciaga from sales of $350 million in 2015 to $2 billion in 2022. Gucci, which was up to $10 billion in 2022, was slipping – hence the switch.
"Demna could reinvigorate Gucci’s ready-to-wear line, especially for younger customers," said analyst Yanmei Tang for research house, Third Bridge. "His strength in streetwear and casualwear might help attract aspirational shoppers, particularly in Asia.
"However, this shift risks alienating long-time clients who were drawn to Gucci for its more classic or eclectic appeal. There is growing concern around Gucci’s brand identity."
Not to be outdone, another whole Italian brand has become a challenger to the French juggernauts. In an all-Italian affair, Prada has bought Versace for $1.4 billion. The sum is a step-down from the $2.15 billion paid by US company Capri, then known as Michael Kors, when it acquired Versace in 2018 from the Versace family and Blackstone.
It’s hefty, however, and significantly the figure did not alter much from the opening of negotiations in January. Trump’s tariffs did not weigh heavily on the price. It is, as well, one of the few deals to be completed since the US leader’s machinations kick-started the global equity rout. Several IPOs and takeovers were canned but not this. It proves that luxury goods truly are apart and possess a historic resilience. They may be down but they are not out.
They are taking a breather and making some possibly overdue strategic calls, that is all.
