The luxury fashion industry, once a beacon of resilience, is facing increasing headwinds. LVMH, the world’s largest luxury group, reported a 2% organic revenue growth for the first half of 2024, but underlying profitability declined by 8%, according to its earnings reported on July 23.
Kering, the industry titan that owns Gucci, Saint Laurent and Balenciaga, experienced a more pronounced downturn, with a 50% drop in net profit reported for the first half of the year on July 24. The company expects a 30% decline in operating profit in H2. Executives cited sluggish market conditions, particularly in China, and the ongoing repositioning of Gucci as key reasons for the decline.
”The luxury market has faced a difficult environment, with decreased consumer spending in several regions affecting our overall revenue and profitability,” said Francesca Bellecchini, deputy CEO for Kering. “The macroeconomic instability and geopolitical tensions have created a challenging backdrop for luxury brands, and Kering has not been immune to these pressures. Our first-half results reflect the ongoing challenges in the luxury market.”
LVMH’s CFO, Jean-Jacques Guiony, acknowledged the impact of exchange rate fluctuations and inflationary pressures on the group’s performance. Despite these challenges, he emphasized the importance of marketing in driving brand desirability.
Advertising and promotions were key topics on both earnings calls. For its part, LVMH’s spending exceeded 2019 numbers for the same period and increased slightly year-over-year. When asked about the company’s marketing investments, Guiony said they had been worth it.
“A&P is not spent in pure waste,” Guiony said. “It definitely has a function.” He highlighted the evolution of runway shows from exclusive events to global spectacles with immense media impact. “Today, when we do a runway show, … [it] attracts between 300 million and 500 million people within 24 hours,” he said.
“It is not passive viewers at the halftime of the Super Bowl looking at advertising. It’s people deciding they want to see the show and clicking on the webcast to see it,” he said. “So it’s what we call ‘qualified’ viewers, as opposed to passive viewers. So obviously, this comes [to us] at the cost, and the cost of runway shows today is much higher than what it used to be. Can we cut it back? Yes. But we will lose, in our view, a pretty powerful marketing tool.”
Kering CEO, François-Henri Pinault emphasized the company’s long-term focus on brand building, despite short-term challenges. Gucci’s repositioning, while impacting current performance, is seen as a strategic move to balance high-end and more affordable offerings. With the brand’s net profit falling 50% in the H1 reporting period, the company is increasing its marketing spend, despite the losses. It declined to share by how much on the earnings call.
“We are intensifying efforts to prioritize costs that directly support our brand strategies, notably [advertising and promotion], store expenses, and clienteling,” said Bellecchini. “This is essential for maintaining our brand’s market position and long-term growth. … Our marketing investments are crucial to driving brand equity and consumer engagement. We are committed to sustaining high levels of visibility and aspirational value for our brands through strategic marketing campaigns.”
Global brand executive and former CMO at Esprit Ana Andjelic offered a broader perspective on the two luxury companies, noting the pandemic era’s role in skewing the results. “Their earnings fell in comparison to the unrealistic level of revenue during and after the pandemic,” she said. “They are going through a market course correction.”
“Luxury customer acquisition usually doesn’t happen through traditional advertising,” she said. “So the advertising that these brands do usually is for awareness of aspirational consumers, who may not be able to afford luxury items yet, but aspire to. They know that the most valuable luxury customers are the repeat ones — those that are brand loyal and catered to via brand events, loyalty programs and VIP programs.”
Andjelic also highlighted the fluctuating nature of advertising and promotions spending, and said that it appears the marketing spend fluctuations across both LVMH and Kering will be across the board. “Advertising and promotions spend is usually the one that is most closely tied to revenue. … This is why it seems like marketing investments change all the time,” she said.
