A Gilded Age Is Fading for Luxury Brands

The end of easy money is catching up with luxury brands. It took a long time, so the skills needed to protect their profit margins may be a bit rusty.

Shares in the world’s biggest luxury company, LVMH Moët Hennessy Louis Vuitton, fell 6% Wednesday after it reported a slowdown in sales for the third quarter the previous evening. LVMH grew sales by 9% for the three months through September compared with a year ago. That sounds impressive, but the business was growing at almost double this pace in the second quarter.

Demand for luxury goods has slowed for most products and in all major regions. One surprise was a 14% drop in sales at LVMH’s wines and spirits divisions. Shipments of cognac brands such as Hennessy have been weak in the U.S. all year as cash from pandemic stimulus checks runs out, but the trend is getting worse.

The slowdown is no longer limited to “aspirational” shoppers, as the industry lingo frames less wealthy buyers. Sales of LVMH’s expensive watch and jewellery brands were weaker than analysts expected. And wealthy European consumers who were spending freely on luxury goods early this summer turned cautious in the third quarter.

Investors knew that a slowdown was coming, but not how big it would be. After Wednesday’s share-price drop, LVMH has lost a quarter of its market value in roughly six months. The slump may be more severe at weaker rivals like Burberry or Gucci owner Kering, whose stocks also fell Wednesday. Recently, the entire luxury industry has fallen out of fashion with shareholders, who at the start of the year expected a bigger surge in Chinese demand after the country lifted all pandemic restrictions.

With business probably as good as it can get in China, there is no obvious place the industry can turn to for new growth. Weaker demand for luxury goods will damp brands’ ability to raise prices. Last year, exceptionally strong sales helped them lift prices by 8% on average, according to UBS estimates. This pricing power has been a big draw for investors, and boosted profit margins, but it is probably over for now. In the four years leading up to the pandemic, prices rose only 1.2% annually on average.

Luxury companies face a balancing act with their multibillion-dollar advertising budgets and store-rollout plans. They may need to save cash to protect margins. At the same time, they must continue to spend on advertising to maintain their trademark desirability.

Some perspective is necessary, though: Today, LVMH’s fashion-and-leather-goods division, its main profit driver, is 80% larger than it was in the third quarter of 2019, before the pandemic. The industry has had an amazing run and is expected to grow in 2024. Still, some of the sheen that made it particularly attractive to investors in recent years has faded.

Last month, LVMH was even dethroned as Europe’s most valuable company by Novo Nordisk, the Danish pharmaceutical company behind weight-loss drug Ozempic. Leaner times ahead.

A new investment fund targeting celebrity-founded consumer brands has secured US$40 million in commitments and is rapidly approaching its US$50 million fundraising target, signalling growing investor appetite for alternative opportunities beyond traditional asset classes.

The Global Talent Fund, which has a maximum raise of US$100 million, focuses on building and investing in consumer businesses alongside celebrities, athletes, and influential personalities who play an active role as co-founders rather than simply endorsing products.

The strategy is based on the belief that changes in consumer behaviour, particularly the rise of social media and digital engagement, have fundamentally altered how brands are built and scaled.

GTF founding partner Jeremy Hunt, who is helping lead the fund’s strategy, said consumers increasingly feel connected to personalities they follow online and are more willing to support products developed by those individuals.

“Consumers are searching for content to engage with, and when a celebrity they like or follow takes them on the journey of creating a product or brand, they genuinely feel part of that process,” he said.

The fund is targeting high-growth consumer sectors including wellness, hydration, beauty and recovery, areas Hunt believes continue to benefit from strong global demand and ongoing innovation.

Rather than backing celebrity endorsement deals, the fund is seeking businesses where talent is deeply involved in product development, brand creation and long-term growth.

According to Hunt, authenticity remains one of the biggest differentiators between successful celebrity-backed brands and those that fail.

“The consumer can see clearly if someone is simply being paid to promote a product,” he said. “The winners are typically the brands where the celebrity has genuinely helped build the business from the ground up.”

The model has attracted support from several prominent Australian investors and business families, reflecting broader interest in alternative investments with global growth potential.

Hunt said consumer brands offered a level of tangibility that many investors found appealing.

“Consumer brands are what we touch, feel, smell and taste every day,” he said. “Our investors understand the growth potential in the model, but they also want to be part of the journey.”

The fund’s rapid progress towards its fundraising target comes amid growing recognition that celebrity influence, when combined with strong commercial execution and scalable business models, can create significant enterprise value.

With several high-profile celebrity-founded businesses generating billion-dollar exits in recent years, supporters of the strategy believe the opportunity remains in its early stages.

For more information, contact marc@kanerbridge.com.au

A Gilded Age Is Fading for Luxury Brands

The latest results from Louis Vuitton owner LVMH show that luxury shoppers are sobering up after years of heavy spending

With US$40 million already committed, the Global Talent Fund is attracting investor attention with a strategy focused on building globally scalable consumer brands alongside high-profile talent.