“The rise of nationalist narratives everywhere – including in China – is making life tougher for global brands,” equity analysts at Bernstein warn.
In a research note published Monday, lead authors Luca Solca and Maria Meita argued that “recent policy decisions in the U.S.” are dampening hopes that the “cyclical demand environment has improved.”
Import duties are a key concern: “If at 20-25 percent they could make the economic recovery in China more difficult and weaken demand of U.S nationals; if at 200 percent (as President Donald Trump has indicated for spirits), they would close the U.S. market to European spirits companies entirely.”
Among strategies Bernstein recommends to European players to counter the risks are:
- A more balanced nationality mix less dependent on China, and tilted toward the U.S. as a “new growth frontier,” particularly in the heartland, where luxury stores are popping up in cities like Detroit, Nashville, Austin, Saint Louis and Minneapolis.
- “Solidly global” communications and partnerships, like LVMH’s sponsorship of the 2024 Paris Games and its 10-year pact with Formula 1.
- Producing more luxury goods in America, especially if “local states or the federal administration support new investments and provide capital inducements.”
That said, Compagnie Financière Richemont’s most recent trading update suggested that “luxury could do well even with China on the back foot.” This might be confirmed if a cyclical rebound continues in the first half.
The bank maintains its “outperform” rating on Hermès International and Richemont, arguing that “best-in-class quality is well-recognized but will also shine amidst macro uncertainty.”
In a separate preview of first-quarter results in which it trimmed forecasts for most luxury players, Bernstein said it remains “constructive” on LVMH Moët Hennessy Louis Vuitton as it “reignites Dior” and fixes its wines and spirits division, but it is more bearish on rival Kering.
“Three big questions remain on Gucci: Is Demna the right talent for Gucci, will he have a supportive enough team around him, when could he start to make an impact?” the report said. “It seems prudent in this context to take guidance with a big pinch of salt and cut our full-year 25 estimate numbers. Kering’s persistent difficulties provide a suitable counterpoint to the path to recovery we expect LVMH to pursue over the next twelve months.”
