Burberry, the renowned British fashion firm, has recently joined the list of luxury companies experiencing a decline in demand due to inflationary pressures impacting affluent consumers worldwide.
In a recent announcement on Thursday, Burberry expressed concerns about meeting its fiscal year targets if this trend persists, following a significant slowdown in second-quarter sales growth of just 1%.
The decline in demand is primarily driven by deflationary conditions in China, a crucial market for luxury goods. Despite government efforts to stimulate spending, consumer prices in the world’s second-largest economy continue to sink.
During the quarter, Burberry observed an 8% decline in sales in mainland China and encountered little relief in other regions. Sales also dropped by 10% in the Americas.
The company stated, “If weaker demand continues, we are unlikely to achieve our previously stated revenue guidance.” Furthermore, this situation will likely push adjusted operating profit for the year towards the lower end of the projected range.
It’s worth noting that back in October, leading luxury group LVMH Moet Hennessy Louis Vuitton and Gucci owner Kering reported underwhelming third-quarter performances, attributing their results to China’s economic challenges.
Investors were also disappointed with the performance of Swiss group Richemont, which owns jeweler Cartier. Their first-half sales experienced a slowdown as wealthier customers tightened their spending.
Richemont Chairman Johann Rupert acknowledged this shift, saying, “We have seen a broad-based normalization of market growth expectations across the industry.”
The present decline in demand is compounded by challenging year-over-year comparisons. In July and August, Chinese demand for luxury products faltered compared to the boom during the same period last year when pandemic-related restrictions were lifted. RBC analyst Piral Dadhania highlighted this trend in a note.
Dadhania predicts that the sector’s overall growth will slow to 10% in the third quarter, compared to the 17% growth witnessed in the second quarter.
As a result, European luxury stocks have experienced a double-digit decline on average over the past three months.
At 11:39 GMT, Burberry shares were down 180.5 pence or 10% at 1,564.0 pence.