Luxury brands struggle as consumer spending drops in China
- Consumer spending data from China has disappointed luxury retailers, with Burberry and Gucci notably affected.
- Barclays analysts predict that the weakness in the luxury sector is structural and will persist for a longer duration.
- Burberry's shares have fallen nearly 60% this year, prompting leadership changes as the brand seeks to recover.
Luxury retailers are facing significant challenges due to disappointing consumer spending in China, with Burberry and Gucci among the brands affected. Recent data revealed that consumer prices in China grew by only 0.6% year-on-year in August, which was below economists' expectations. Additionally, factory gate prices fell by 1.8% compared to the previous year, indicating a broader economic slowdown. Analysts from Barclays, after extensive research across China, have determined that the issues facing the luxury sector are structural rather than cyclical. They predict that the market will remain weak for an extended period, which has led to a sharp decline in stock prices for major luxury brands. Burberry's shares have plummeted nearly 60% this year, reaching their lowest point since the 2009 financial crisis. In response to these challenges, Burberry has made significant leadership changes, appointing Joshua Schulman as the new CEO to spearhead a turnaround strategy. Meanwhile, Kering, the parent company of Gucci, has also seen its shares decline, with analysts warning that the recovery of Gucci may be delayed due to the deteriorating economic environment in China. Overall, the luxury goods sector in China is expected to grow by only 4% by 2025, a reduction from earlier forecasts of 7%. This decline reflects the ongoing struggles of luxury brands to adapt to changing consumer behaviors and economic conditions in one of their most important markets.