(Telestock) – China’s macro environment “has further deteriorated in the summer and now there is a clear vision of the fact that China’s weakness is structural and not just cyclical“. He claims it Barclays in a report on European luxury, after analysts from the investment bank spent two weeks in mainland China and Hong Kong visiting brands, luxury malls, retailers, investors and other industry experts.
For luxury goods, this translates into negative summer sales in mainland China (up to around 50% decline) and increasingly selective customers. In this very polarized environment, brands in transition are more at risk: hence Barclays has downgraded Burberry And Kering from Equal Weight to Underweight. Overall, the luxury goods sector is now expected to grow by around 4% (up from 7% previously) in 2025.
“The sentiment on the ground was much more cautious than 6 months agoas there is now a clear view that China’s weakness is structural – the report says – Many of the growth drivers that pushed Chinese to enter the luxury market (financial and real estate boom, high GDP growth) are now under pressure and the transformation of the Chinese economy may give less impetus to luxury demand. The luxury pie is now barely growing, so growth may be weaker for a longer period”.
Going into detail, Barclays has cut Burberry to UW on structural weakness in the brand and lowered the TP to GBP540. In addition, it downgraded Kering at UW and lowered the TP to 210 euros, which represents a downside potential of 11%, noting that “we learned that Gucci continues to suffer a sharp decline in sales in China, more than its peers, and feedback from industry experts has been rather pessimistic on the potential impact of Gucci’s new product offering.”
For the names Overweightthe following changes have been made to the TP: LVMH (EUR795 vs. EUR860); Richemont (EUR150 compared to EUR164); Hermes (EUR2,220 vs. EUR2,260), Moncler (EUR63 vs. EUR64) and Prada (HKD68 vs. HKD69). For the names Underweight: Ferragamo (EUR6.9 vs. EUR7.2), Swatches CHF145 compared to CHF153.