New research from Bloomberg Intelligence has revealed that Europe, the home of heritage luxury-goods makers, could see travel recovery extend more in 2023 after a visible pick-up in 2H22.
Bloomberg Intelligence’s Global Luxury Goods 2023 Outlook revealed that sales could improve in 2023 as tourism in Europe, the Middle East and North America repairs more. A full recovery is unlikely in the short term, given that some China health restrictions will ensue.
However, we believe the upside could outweigh the downside with more re-openings in China to extend Asia-Pacific’s potential. At worst, we think Asia would be flat vs. 2022. Kering reported Western European 3Q sales to tourists were nearly 10% below 3Q19, though UNWTO suggests the region may be about 13%-17% faster at recovering vs. the global trend, mainly due to weakness in the euro.
Deborah Aitken, Senior Industry Analyst, Consumer Products at Bloomberg Intelligence, said: “The ability of luxury-goods makers’ to drive double-digit sales and earnings growth in 2023 is partially dependent on China reopenings, though progress across all regions outside the country could still propel high-single-digit gains. Portfolio interest is again led by success of the biggest brands – Louis Vuitton, Hermes, Chanel, Gucci, Dior, Cartier and Rolex — via new designs, direct marketing and storytelling.
The US remains robust at the high-price end, but more challenged at the entry level, while tourism is benefiting western Europe. Lockdowns in China remain problematic, with a reopening of international travel unlikely until 2024. A tried-and-tested pricing model protects profit, enabling greater cash generation, while net positions underpin rising dividend returns and more M&A activity.”
Luxury companies’ top-line growth could benefit from over 500 bps of growth if tourism spending were to fully recover in 2023, though the likelihood is high that China will remain a partial drag. Pent-up demand from affluent customers elsewhere and raised travel access, logistics and supply will help. Currency and relaxed health restrictions could determine travel destinations. Europe could remain popular with American tourists in 1H23 on the dollar’s strength, while pent-up demand from wealthy Asians could unwind more in 2H23.
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