Luxury slowdown: The open-run crowds are gone

A department store. This image is unrelated to the article. [123RF]

"They kept raising prices — so many times people started calling it the 'Nth price hike.' And still, it seemed like people with money would line up 100 at a time for an open run, and you kept hearing that things were selling out. But I guess everything has its end. The mood? Honestly, it doesn't feel like it used to." — a person in their 40s who works in the luxury industry, identified only by the surname Lee.

That sense of a turning tide appears to be borne out by the numbers. The luxury goods industry, which had grown consistently on the back of repeated price increases, is now losing steam, with consumer fatigue from accumulated hikes and a shrinking wealth effect combining to cool the once-fervent appetite for high-end goods.

Luxury sales growth at Lotte, Shinsegae and Hyundai Department Store slowed from around 40 percent in the second quarter of this year to the mid-20 percent range in the third quarter, and fell further to the 10 percent range in October, according to Yonhap, citing department store industry data.

At Lotte Department Store, luxury sales growth came in at 30 percent in the first quarter, 40 percent in the second and 25 percent in the third, before dropping to 15 percent in October. Shinsegae Department Store posted growth of 29.8 percent, 40.9 percent and 23.3 percent over the same three quarters, slowing to 10.2 percent in October. Hyundai Department Store followed a similar trajectory — 32.6 percent, 41.4 percent and 25.3 percent — before falling to 11.8 percent in October.

The slowdown is even sharper in jewelry, a category that had seen some of the steepest sales gains.

In the second quarter, jewelry sales growth at Lotte, Shinsegae and Hyundai Department Store stood at 65.0 percent, 80.9 percent and 70.6 percent, respectively. By October, those figures had dropped to 15.0 percent, 20.7 percent and 20.4 percent.

The pullback in luxury spending is also being felt in global markets.

LVMH's fashion and leather goods division posted a 5 percent organic sales decline in the third quarter compared with the same period last year. Weak consumer spending in China and a slowdown in high-end consumption in the United States appear to be weighing on major players' earnings.

Gucci also saw sales fall 6 percent in the third quarter. Share prices of Kering Group, which owns the Gucci brand, along with Hermès and LVMH, have each fallen roughly 40 percent this year.

The shifting mood is expected to affect the years-long trend of luxury brands raising prices. Some analysts say the strategy of announcing price hikes in advance to spur pre-increase purchases is losing its pull.

Luxury sales still up year-on-year, but some say it's too soon to call a downturn

Some brands have even begun rolling back prices on select items.

French luxury jewelry brand Boucheron adjusted the prices of certain products it had raised in July back to their previous levels in October, in line with a global pricing policy update — an unusual move in an industry that has consistently pushed prices higher.

Still, some caution against reading too much into the trend. Luxury sales at domestic department stores remain higher than a year ago, leading some to argue it is premature to declare that spending has entered a genuine downturn.

The 'lipstick effect' surfaces in Europe

'Tax hikes, inflation, AI job fears'

Meanwhile, in September, French beauty group L'Oréal overtook LVMH to claim the top spot by market capitalization on the Paris stock exchange.

Based on closing prices on Sept. 15 (local time), L'Oréal's market capitalization stood at 203 billion euros ($227 billion), edging out LVMH's 201 billion euros, according to Reuters and Bloomberg, as reported by Yonhap. It was the first time since 2017 that a non-luxury listed company had topped the Paris bourse by closing market capitalization.

L'Oréal's rise — driven by its broad portfolio spanning luxury and mass-market cosmetics brands — was widely attributed to the "lipstick effect."

The lipstick effect refers to the tendency for consumers to trade down from expensive luxury goods such as clothing, shoes and handbags to smaller, more affordable items like lipstick during economic downturns.

"When people can no longer afford expensive luxury goods, they enjoy treating themselves to small items like lipstick instead," said Nick Anderson, an analyst at Berenberg. "There are concerns across Europe about tax increases, inflation and AI-related job losses."

yul@heraldcorp.com