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Neiman and LVMH Show Luxury Still Has Pricing Power

Luxury is holding its own—for now.

Amid a backdrop of a possible global recession, luxury still retains a bit of pricing power. But how long that lasts is up for debate.

The International Money Fund on Tuesday said in a report that global growth will slow to 2.7 percent in 2023 from a 3.2 percent estimate for this year, down from 6 percent in 2021.

“The worst is yet to come, and for many people 2023 will feel like a recession,” it said.

Luxury made out well after the first Covid wave when global gross domestic product bounced back, reflecting a strong correlation between the two, according to HSBC luxury analysts. U.S. equity markets, consumer confidence in Europe, and tourism in Asia also support the luxury sector.

“We believe the next crisis could look like 2008-2009 in the sense that developed economies are likely to suffer more than emerging markets,” the HSBC analysts wrote in a recent report. “We believe however that the magnitude of the downturn will be nothing like 2008-09, considering much higher liquidity levels currently.”

Sales in China could rebound in 2023 after a year marked by restrictions. In general, wholesale brands are in a better position now than pre-Covid, as they have better knowledge of who are their end customers and what they want.

HSBC analysts expect 7.5 percent growth in luxury in fiscal year 2023, down from their prior 9.2 percent estimate.

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Luxury brands have used their pricing power to raise MSRPs for the first part of this year to offset input cost inflation and ease pressure on the cost of goods sold.

Gucci authorized mid-single-digit prices hikes for some products in February, with a high-single digit hike in June. Burberry, Michael Kors and Canada Goose also charged more for some items, the HSBC analysts said.

Another plus for the sector has been the increase in global air traffic over the summer. Citing data from the International Air Transport Association, a separate HSBC report noted that international traffic in July was down just 32 percent, versus down 73 percent from a year ago. Most countries have relaxed their travel restrictions.

LVMH

At LVMH, third quarter revenues were “in line with the trends observed in the first half of the year,” it said on Monday. Overall organic revenue growth rose 19 percent in the third quarter to 19.76 billion euros ($19.16 billion). Revenue for the nine months grew 28 percent from a year ago to 56.49 billion euros ($54.8 billion).

The French luxury group said Europe, the U.S. and Japan “benefitted from the solid demand of local customers and the recovery of international travel.” Asia saw lower growth for the nine-month period, although LVMH said sales are picking as restrictions fall.

Organic revenue growth for the fashion and leather goods group rose 22 percent in the third quarter to 9.69 billion euros ($9.4 billion). Revenue rose 31 percent to 27.82 billion euros ($27 billion) for the nine months.

“The latest ready-to-wear fashion shows, designed for women by Nicolas Ghesquière, enjoyed a tremendous reception,” LVMH said. The company also said that its Christian Dior business “continued to achieve remarkable growth in all its product lines.” In addition, Celine saw very strong growth from the success of Hedi Slimane’s creations, while the Loewe business also grew, driven by the strong creativity of J.W.Anderson. Loro Piana “maintains good momentum,” while Fendi, with the creative help of Kim Jones, celebrated the 25th anniversary of its iconic Baguette bag.

LVMH said it’s “confident in the continuation of current growth” even against an uncertain geopolitical and economic backdrop, and will “maintain a policy of cost control and selective investment.”

Neiman Marcus Group

Neiman Marcus reported $5 billion in gross merchandise value for fiscal year 2022 for the 12 months ended July 31, 2022.

Neiman saw “year-over-year meaningful gross margin expansion supported by healthy 80 percent full price selling.” That gave it an 11 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin for the fiscal year. It has been working on an integrated omnichannel luxury retail model.

“Our fiscal year concluded at the end of July, throughout which our teams worked diligently to achieve over 30 percent comparable sales versus the previous year and $495 million in adjusted EBITDA,” CEO Geoffroy van Raemdonck said, adding that its top 2 percent of customers “drove 40 percent of total sales” during the fiscal year.

What’s more, 80 percent of top customers have at least $1 million of net worth, and top customers spend an average of more than $25,000 each year, buying with Neiman 25-plus times a year. The company retained 90 percent of its top customers for the fiscal year.

New customers tend to skew younger, from Gen X to Gen Z. “They migrate up the engagement spectrum, reflecting growing incomes and desire for luxury,” it said.

As for the new integrated model, Neiman said multi-channel consumers on average spent five times more than those who shopped only one channel.

“Our enhanced data analytics and personalization is designed to scale customer engagement in an intelligent and informed way, giving them flexibility to interact with us and buy based on their preferences,” van Raemdonck said.

Neiman said the Stylyze it acquired offers machine learning capabilities that help power “relevant shopping experiences.” Sales associates send on average 1.5 million texts and personalized emails to customers per month through the Connect selling tool.

Also helping the integrated model is a store network that’s “strategically positioned near top customers, with 70 percent of U.S. high-net-worth individuals living within 30 miles of a Neiman Marcus store. “Nearly 70 percent of [Neiman] stores reached their highest revenue in over a decade, while digital properties grew total visits to 300 million [during fiscal year 2022], marking continued growth in the online business,” it said.

In April Farfetch Ltd. invested $200 million in Neiman as part of a partnership that includes replatforming the department store’s Bergdorf Goodman website and mobile app using Farfetch Platform Solutions.