Groupe Dynamite Inc., a Canadian retailer of women’s clothing, has hired banks for an initial public offering that’s likely to be marketed in the coming weeks, according to people familiar with the matter.

The company is working with major Canadian financial institutions and a US bank on the offering, the people said. If successful, it would provide a jolt to the stagnant Canadian IPO market, where just C$700 million ($504 million) has been raised this year, largely for financial vehicles such as exchange-traded funds, data compiled by Bloomberg show.

The IPO may value the company at C$1 billion or more, according to the people, who spoke on condition they not be identified because the matter is still private. The discussions are ongoing and details of the offering may still change.

Groupe Dynamite, based in the Montreal, operates nearly 300 stores in US and Canada. It has locations under the brands Dynamite and Garage as well as online sales, and is owned by Quebec businessman Andrew Lutfy. The stores sell fashion-forward clothing and advertise using bold, youthful imagery. Some consumers criticised Garage’s advertising earlier this year, however, for displaying half-dressed models.

Groupe Dynamite promoted former Abercrombie & Fitch Co. executive Stacie Beaver in April to president and chief operating officer. “The US will continue to serve as a core focus and growth market for the company’s future ambitions,” the company said in a statement announcing the appointment.

A spokesperson for the company declined to comment.

The largest new listing in 2024 in Canada is Mercer Park Opportunities Corp., a special purpose acquisition company that raised C$315 million in June. Bloomberg News reported that Canadian generic drug manufacturer Apotex Inc. is also making plans for a potential initial public offering next year.

Lutfy is chief executive officer of Carbonleo, a real estate developer that recently built the Royalmount, a luxury mall in Montreal.

By Mathieu Dion, Geoffrey Morgan, Christine Dobby and Chunzi Xu

Learn more:

On the Road to Recovery, Canada Emerges as an Unlikely Luxury Player

Less reliance on tourists and a commitment to shopping locally have accelerated Canada’s retail recovery, while innovations brought on by the pandemic have positioned the sector for a strong future.

Boohoo Group Plc appointed Debenhams boss Dan Finley as its new chief executive officer, rejecting billionaire Mike Ashley’s bid to lead the retailer.

The shares advanced after the British fast fashion company said on Friday that Finley will replace John Lyttle as CEO with immediate effect. Finley became CEO of Debenhams in January 2022 after more than a decade heading JD Sports.

Shares in Boohoo rose as much as 6.7 percent in London. The stock has lost 28 percent in the first 10 months of this year.

Finley’s appointment stymies an attempt last week by Ashley, who founded Frasers Group Plc, to appoint himself as a director and CEO of Boohoo. Frasers accused Boohoo’s board of presiding over an “abysmal” trading performance.

At the time, Boohoo said the process to replace Lyttle was already underway. It said that Frasers has a similar stake in its rival Asos Plc, which could raise governance concerns.

Frasers, the parent of Sports Direct, is Boohoo’s largest shareholder and currently owns 27 percent of its stock, according to data compiled by Bloomberg.

Boohoo, which owns the Debenhams, Karen Millen and PrettyLittleThing brands, announced last month that it’s undertaking a strategic review — a move that could potentially lead to the breakup of the company.

“We are undertaking a process to consider all options, look at each business unit and see what the best way forward is,” Finley told Bloomberg News in a call.

Boohoo bought Debenhams for £55 million in 2021, succeeding against Frasers, which had long sought to acquire the department store chain. Debenhams achieved a gross merchandise value annual run rate of £800 million under Finley, the group said Friday.

By Jennifer Creery

Learn more:

Boohoo Rejects Criticism From Frasers Group as ‘Inaccurate and Unfair’

Boohoo has criticised Frasers Group’s attempt to install founder Mike Ashley as CEO, defending its debt refinancing strategy and emphasising the need for careful governance in leadership decisions.

Add another job to the list that artificial intelligence might replace — fashion models.

The Spanish fast-fashion chain Mango is eliminating some human models and using AI-generated avatars to create advertising campaigns more quickly, chief executive officer Toni Ruiz said in an interview. The garments these AI models are wearing are real and available to customers for purchase.

Among Mango’s main rivals are retailers including Inditex’s Zara and H&M, brands that swiftly jump on fashion trends to produce items that sell at affordable prices. To compete, Mango is using AI to pick up speed across different areas of the business.

“It’s about faster content creation,” Ruiz said.

Mango piloted its first AI-generated campaign in July, which featured a limited-edition collection geared to teenage girls.

The most recent AI-generated advertising campaign, released this month, is also teen-focused. Some imagery appears on the Mango website with a disclaimer that AI was used to create the visuals. Mango plans to expand its use of the technology to its women’s and men’s collections, but hasn’t made any final decisions yet.

AI is driving a shift in the $2.5 trillion modelling industry. Mango joins other retail brands, such as Levi Strauss & Co., Louis Vuitton and Nike Inc. that have already teamed up with AI modelling companies. The financial benefits are clear, with AI models typically costing a fraction of the price of a human model.

Mango’s use of AI goes beyond marketing and advertising. AI is also helping the company design collections, providing inspiration for fabrics and more. A bot is now capable of creating clothing that conforms to the Mango design aesthetic, Ruiz said.

The retailer, which is expanding in the US, said it’s still creating human jobs. The company currently employs around 640 workers in the US and plans to double that number by 2025. Mango aims to grow its US footprint to nearly 70 stores by the end of 2025, up from 42 at the end of this year.

By Julia Fanzeres and Crystal Tse

Learn more:

Fashion’s AI Dilemma Is Getting Worse

Baggu and Collina Strada are the most recent targets of ire among consumers opposed to the use of generative AI designs, and they won’t be the last. What does it mean for an industry that has already embraced the innovation with open arms?

EBay Inc. dropped in extended trading after projecting holiday season sales that fell short of analysts’ estimates, suggesting the e-commerce company continues to struggle against larger rivals.

Revenue will be $2.53 billion to $2.59 billion in the period ending in December, the company said Wednesday in a statement. Profit, excluding some items, will be as much as $1.22 a share. Analysts, on average, estimated sales of $2.64 billion and earnings of $1.23 a share, according to data compiled by Bloomberg.

In an effort to stem its eroding market share, eBay has been focusing on narrow categories such as car parts, luxury goods, collectibles and refurbished appliances. The San Jose, California-based company is investing in authentication services to appeal to luxury shoppers wary of online fakes and offers guarantees on vehicle parts and refurbished goods to reassure those focused on thrift. Bill Nash, chief executive officer of used car retailer CarMax, was added to the board of directors in September.

The presidential election, a shorter number of days between Thanksgiving and Christmas, and the devastating hurricane season were among the significant factors that affected the holiday sales forecast, CEO Jamie Iannone said in an interview.

“Consumers get distracted because of what’s happening with the election,” he said. “We factored that into our guidance based on what we’ve seen historically.”

Before Wednesday’s results, eBay’s efforts this year had found favour with investors. The stock had gained 44 percent in 2024 to $62.63 at the close. The shares dropped about 8.5 percent after the results.

In the third quarter, revenue increased 3 percent to $2.58 billion, while adjusted profit was $1.19 a share. Analysts, on average, estimated sales of $2.55 billion and earnings of $1.18 a share.

Gross merchandise volume, the value of all goods sold on eBay, increased 2 percent to $18.3 billion during the quarter, beating the average estimate of $18.1 billion.

By Spencer Soper

Learn more:

Margherita Missoni’s Maccapani Brand Attracts Investment From Bizzarri Family, Collaborates With eBay

The family of former Gucci CEO Marco Bizzarri has taken a minority stake in the Italian knitwear scion’s new womenswear venture.

Camille Weston’s breast augmentation carried a $7,000 price tag. Her insurance, of course, wouldn’t cover it.

But a lender happily would. So the 22-year-old Salt Lake City resident opened a credit line — interest free for six months — and went under the knife. The procedure could turbocharge her TikTok following and might help the social media agency she runs with her sister, too. She repaid the debt before a single cent of interest accrued.

Weston is part of a growing cohort eager to spend on ultra-pricey cosmetic work and willing to borrow to fund it. Procedures like tummy tucks and lip fillers are on the rise, helped along by scores of social media influencers flaunting their results. And the bills that go along with them are increasingly being financed by specialty lenders, attracted by unusually high credit scores and even higher price tags.

“You wouldn’t think that they would need to have this type of financing,” said Shawna Chrisman, founder of Destination Aesthetics Medical Spa in Sacramento, California. “These are responsible people with their money, but they’re using this as an option to ideally get packages and higher-service treatments that have a higher ticket price.”

A setup like that is a sort of siren call for Wall Street. Major procedures like liposuctions and buccal fat pad removal were both up 7 percent in 2023 from the year before, according to the American Society of Plastic Surgeons. Injections like Botox were up 9 percent in the same period, with over 25 million minimally invasive procedures performed. With price tags that easily run up to several thousand dollars, financing all of this represents a new, unusual opportunity to put money to work.

When bankers packaged $250 million of cosmetic procedure loans into a bond earlier this year, debt investors placed so many orders that the deal was upsized to $400 million. The riskiest slices of the bond were even made cheaper, a sign of ravenous investor demand.

Investors said they bought the bonds because of their exposure to a prime consumer who can afford to spend money for Botox, dental work and other procedures. Many require repeat use. Botox lasts three to four months. Fillers a bit longer. Chemical peels should be done every few weeks to years, depending on the type. This keeps consumers borrowing, but given the profile of the borrower, likely to repay. About half of the loans in the bond were taken out by borrowers with credit scores of 700 to 850, according to bond documents seen by Bloomberg.

All of the loans in the deal were issued by Cherry Technologies, a buy-now-pay-later company laser-focused on healthcare. Cherry breaks down treatment bills ranging from $200 to $10,000 into smaller instalments for customers and is one of several financing options available at clinics like Chrisman’s.

Big Loan Book

It was the first time Cherry assembled a loan book big enough to tap the broader financial markets after having done smaller, private financings in the past. The growth comes as prices for the procedures soar: The average price of a breast augmentation increased 13 percent from 2022 to 2023. Brazilian butt lifts went up 19 percent to $7,264 and facelifts 22% to $11,395.

With prices like that, it’s not a wonder a cosmetic lending boom is afoot. Consumers who can’t borrow to cover the costs, or choose not to, sometimes turn to more extreme methods of financing the procedures.

“I just wanted to feel better about myself,” said Bree Cruz, a 32-year-old stay-at-home mom from Temecula, California. She paid for a tummy tuck and breast augmentation in part by serving as a surrogate. “This gave me a lot more confidence. It just made me feel like myself again.”

Back at Chrisman’s clinic, a variety of financing options are available. Chrisman offers clients payment through Alle, a partnership between Cherry and Allergan, the maker of Botox. She also offers CareCredit, a health and wellness credit card by the financial firm Synchrony that can be used on cosmetic procedures.

CareCredit and competitors like Alphaeon give users low-to-no interest promotional periods they would not get from other cards. For the current 12 months, Chrisman clocked about $771,000 in sales using CareCredit — up from roughly $474,000 in the previous 12 months. Meanwhile, the average credit score for CareCredit users at her practice is 710.

There are concerns that financing cosmetic work incentivises consumers to spend on services they don’t need and also can’t afford. At the same time, research from the Federal Reserve Bank of New York found that buy now, pay later plans are disproportionately used by people with more fragile financial situations, including those with lower incomes, lower credit scores and those who have been recently rejected for credit applications.

Specialised Cards

After promotional periods end, annual percentage rates for specialised credit cards are higher than average. The most recent national average APR across all credit cards is 21.76 percent, according to data from the Federal Reserve Bank of St. Louis. CareCredit’s can be 32.99 percent. Alphaeon’s can reach 31.99 percent. This shouldn’t make a difference if users pay their balances off in full, but could sting if they fall behind.

Executives at CareCredit and Alphaeon say their underwriting systems help avoid lending to consumers who can’t afford to repay their loans. Cherry declined to comment.

Lisa Homsy didn’t finance her procedure, but still went to great lengths to get the best value for her money.

The 36-year-old content creator from Canada was quoted $14,000 for a breast augmentation domestically. Even in Mexico, the cost was $7,000.

Instead, she travelled to Turkey, where she got the surgery and a seven-night stay in a hotel for about $6,000. She found the clinic through TikTok and sent them a message via WhatsApp. To figure out which surgeon would do the procedure, they asked her to send a photo of her breasts.

“I was like ‘where are these photos going?’” Homsy said. “They were like, ‘Yeah we just want to connect you with the right doctor.’”

It all worked out, and she is pleased with the results.

By Charlie Wells, Carmen Arroyo and Claire Ballentine

Next Plc raised its profit guidance for the third time this fiscal year on strong sales, even as British consumer confidence weakens ahead of expected tax rises in Wednesday’s budget.

The British fashion and homewares company said that its annual pretax profit is now expected to top £1 billion ($1.3 billion) for the first time, up from previous guidance of £995 million. Next had already raised its outlook in August from £980 million.

Full price sales rose almost 8 percent in the third quarter compared with the previous year, helped by the early arrival of cold weather which encouraged shoppers to stock up on winter clothing, the company said.

Next shares rose 2.8 percent in early trading in London. The stock is up more than 50 percent in the past 12 months.

The improved outlook appears to be “driven by a combination of buoyant international expansion and good domestic traction,” James Grzinic, equity analyst at Jefferies, wrote in a note to clients. Next previously said its overseas business, where it sells clothes online in Europe, parts of the Middle East and Asia Pacific, helped offset some summer weakness in the UK.

“The online channel is likely to remain the main growth driver,” wrote Aarin Chiekrie, equity analyst at Hargreaves Lansdown, in a note. “It already brings in more than half of the group’s sales, and expansion overseas is still in its infancy.”

However, he added that given the potential size of the overseas markets where Next is gaining traction “there’s a big opportunity if Next can execute its expansion plans well.”

Next’s performance stands in contrast to the rest of the sector, with fashion retailers contending with weaker spending. Last month Associated British Foods Plc, which owns discount fashion retailer Primark, blamed unseasonable weather for a decline in footfall and softer volumes in the second half.

The results come just hours ahead of what could be one of the UK’s biggest-ever tax raising budget announcements. Rachel Reeves, chancellor of the Exchequer, is expected to raise about £35 billion a year in tax and welfare savings by the final year of the parliament, and propose another inflation-busting minimum wage increase.

Next’s Chief Executive Officer Simon Wolfson has previously warned that higher wages may result in store closures.

By Jennifer Creery

Learn more:

Next Loses Equal Pay Claim Against Mostly Female Retail Workers

An employment tribunal has ruled that British retailer Next Plc must pay over £30 million in back pay to 3,540 current and former in-store sales workers, predominantly women, who were found to be underpaid compared to their male warehouse counterparts.

Adidas AG reached an out-of-court settlement with rapper Ye that concludes all claims connected to the sportswear maker’s decision to end their partnership two years ago.

“Both parties said we don’t need to fight anymore and withdrew all the claims,” chief executive officer Bjorn Gulden told journalists in a call. The agreement didn’t include any payments, he added.  “No one owes anybody anything anymore. So whatever was is history.”

The German company cut ties with the rapper and designer Ye, previously known as Kanye West, following a rash of offensive behaviour, including antisemitic comments. The Yeezy line accounted for about half of Adidas’s total profits before the split, according to analysts.

The sportswear company was stuck with some €1.2 billion ($1.3 billion) of unsold Yeezy shoes and merchandise after the end of the partnership, and has been gradually selling it down ever since. It expects to be done with the brand by the end of this year.

By Sonja Wind

Learn more:

Case Study | The Strategy That Brought Adidas Back From the Brink

Adidas has mounted one of the more remarkable turnarounds in recent memory after facing a crisis two years ago from the end of its Yeezy business. BoF spoke to chief executive Bjørn Gulden and other members of Adidas’ leadership to unpack how a series of bold decisions on products like its Samba sneaker, a move to refocus the brand on athletes and internal shifts brought Adidas back from the brink.

Crocs Inc.’s shares fell as much as 16 percent in US premarket trading after the seller of brightly coloured plastic clogs tempered growth expectations and warned of sales declines for its casual HeyDude brand.

Crocs’ sales growth in the third quarter, which includes the crucial back-to-school shopping period, remained flat. The company said it expects 2024 sales growth of 3 percent, the low end of its prior guidance of 3 percent to 5 percent. Dragging revenues was Crocs’ casual sneaker and loafer brand, HeyDude. The brand’s full year sales are expected to fall 14.5 percent compared to a year ago, lower than its previous guidance of down 8 percent to 10 percent.

“HeyDude’s recent performance and the current operating environment are signalling it will take longer than we had initially planned for the brand to turn a corner,” said chief executive officer Andrew Rees in a press release.

After a decade-long fallow period during the 2010s, Crocs regained relevance following a strategic move to target teens with endorsements from celebrities like Justin Bieber and Post Malone. Annual sales more than tripled over the last four years.

The shoemaker has run into trouble among schools across the US that are banning Crocs due to safety concerns and distractions. The company has said the school restrictions are “baffling.”

Crocs shares were up 47 percent for the year through Monday’s close, while the S&P 500 index has risen 22 percent.

By Julia Fanzeres

Learn more:

Crocs to Buy Footwear Brand Heydude for $2.5 Billion

Crocs Inc said on Thursday it would buy privately owned footwear label Heydude for $2.5 billion in a cash-and-stock deal, as the rubber clogs maker looks to take advantage of the pandemic-led surge in demand for casual shoes.

Over the past 15 or so years, Shopify Inc. has established itself as the go-to for mom-and-pop businesses looking to set up shop online. Now, in a dramatic shift, the Canadian company is targeting larger companies and, in doing so, looking to wrest e-commerce customers from Salesforce Inc.

Shopify says it has lured hundreds of Salesforce clients, including big brands like Mattel Inc., Toys R Us and mattress seller Casper, and is encouraging other companies to “join the mass migration.” Shopify’s key selling point is lower prices for its suite of e-commerce services and it has been cheekily calling out Salesforce’s penchant for wining and dining potential clients.

“The reason most enterprise software is so expensive is because it takes so many steak dinners to put it in your hand,” Shopify chief operating officer Kaz Nejatian said in an interview.

Salesforce eagerly clapped back, saying its platform offers functions that Shopify doesn’t, including customer service, and can better handle traffic surges. “Anything’s cheaper if you narrow the use case to one thing and say, ‘Oh, we’re cheaper for this one thing,’” said Luke Ball, Salesforce’s senior vice president of product management. “We’re still the incumbent reigning champion in the space other companies are trying to break into.”

By targeting larger retailers, Shopify is hoping to turbocharge growth, which took a hit after the pandemic e-commerce boom fizzled. The company makes much of its money selling services to its customers and is betting that the order volume generated by bigger retailers like Mattel will help it grow more quickly than by relying on its existing base of mom-and-pops.

For years, Salesforce and Shopify peacefully co-existed. Better known for its customer management software, Salesforce entered e-commerce in 2016 with the $2.8 billion acquisition of Demandware. Now called “Commerce Cloud,” Salesforce says its clients include most top retailers, such as Saks Fifth Avenue. Customers also typically use other Salesforce products, meaning they can integrate the e-commerce tools with marketing and other functions, Ball said.

Salesforce also benefitted from a healthy pipeline of direct-to-consumer brands backed by venture capitalists concentrated around its San Francisco headquarters. The thought at the time was that the startups would quickly grow to the point where they needed Salesforce’s robust set of commerce and customer-relations software. Instead, many of them flopped, and a key new business pipeline dried up.

Today, the company’s commerce and marketing business is its slowest growing segment, and Shopify revenue eclipsed the business back in 2021. “They’re certainly a noticeable competitor in the space,” Ball said. “I think one would be head-in-the-sand to not see it.” Salesforce says it has been attracting Shopify customers, including Black Rifle Coffee Co., ReserveBar and Hasbro Inc.

Shopify built its business by making it easy for small businesses to quickly set up online stores. The Ottawa-based company constantly monitors industry trends and updates its software so online merchants can reach their customers on desktops, mobile devices and shopping apps without having to worry about the back-end technology. Shopify’s broad visibility into online transactions also helps sharpen its fraud detection tools.

Like Amazon, Shopify benefited from shoppers’ stampede online during the pandemic, but suffered once they returned to their regular shopping habits. The company also abandoned ambitions of building a logistics operation that would have helped it grow by selling more services to customers it already has. Without that, Shopify needs to find new clients.

In an effort to attract bigger customers, the company has been touting fees that it says are much cheaper than Salesforce’s. Scott Lux, executive vice president of global commerce and technology at clothier Esprit, says customers could save as much as 50 percemt over three years by switching. Shopify also has added new features that help it appeal to bigger customers, such as letting brands list as many products as they want and selling them on marketplaces and social media apps in addition to their own websites.

Mattel, which recently switched from Salesforce to Shopify, says its decision rested partly on the fact that fees are tied to traffic. While the toymaker experiences big spikes in demand for new products, such as collectible Hot Wheels, it doesn’t need that much capacity 24/7. Shopify’s flexible platform also lets Mattel customise pages for key products, including American Girl dolls, says Subramanian Kovilmadam, the company’s vice president of technology.

“Shopify has been extremely responsive to the complexities of Mattel’s needs,” he said. “By moving from a large, annual licensing fee model to a more flexible and transactional cost model, transitioning to Shopify has also resulted in cost savings for us.”

Salesforce’s Ball said the company is working on introducing more “pricing flexibility” for customers.

“Shopify has added enough capabilities over the last few years that have made it a viable option for even the biggest e-commerce merchants,” said Gil Luria, an analyst at D.A. Davidson & Co. who follows both companies. “At the same time, Salesforce is deemphasising its Marketing Cloud and focusing more on the Data Cloud, which leaves them vulnerable to losing e-commerce customers.”

Salesforce will still appeal to big businesses with annual sales of $300 million or more since it has more sophisticated tools, including the ability to run tests and see which marketing campaigns perform best so they can be refined in real time, Lux said. Shopify is gaining traction with businesses that aren’t quite that large and want to save money, he said, adding that a lot of the Shopify savings come because the tools are simpler to use and don’t require as much technology support staff from the client.

“Shopify is just maniacally focused on commerce, which has helped them stand out with efficiency,” he said.

By Spencer Soper and Brody Ford

Adidas reported strong third-quarter growth across most regions in a sign a revival plan led by chief executive Bjørn Gulden is starting to work.

The German sportswear group said Tuesday that currency-neutral revenue grew by double digits in most places, except North America, where dwindling sales of Yeezy sneakers are still weighing on the region. Group operating profit also jumped to €598 million ($646 million), from €409 million in the same period last year.

Earlier this month, Adidas raised its annual profit target for the third time, amid surging demand for its retro kicks. The company said it now expects to generate operating profit of around €1.2 billion, up from the previous forecast of around €1 billion.

Shares of Adidas rose as much as nearly 3 percent in early trading. The stock had risen 16 percent so far this year through Monday’s close. Rivals Nike and Puma have both posted losses in contrast.

Gulden took over Adidas in January 2023, shortly after the company cancelled its partnership with Ye, following a string of anti-semitic comments by the rapper and designer. Gulden’s plan for Adidas is to reduce the company’s previous reliance on the Yeezy brand, while refocusing the design of new footwear and apparel and streamlining its operations and costs.

His early bet on boosting popular retro products like Samba and Gazelle shoes is paying off, with Adidas shares outperforming cross-town rival Puma. Adidas is currently scaling up volumes for its 70s-era running shoes SL 72. The goal is to close the gap to Nike, which remains the industry leader despite its struggles.

All regions, sales channels and product divisions are now growing, Gulden said in a statement. Even in North America, where sales fell percent, the region returned to positive growth when the Yeezy brand is excluded, he said.

Adidas is nearing the end of its Yeezy inventory, which contributed around €50 million in operating profit during the third quarter, the company has said previously. There will be no further profit contribution in the fourth quarter.

The current momentum is a sign that Adidas has more to offer than just its classic sneakers, according to analysts at Morgan Stanley led by Edouard Aubin. These strong top-line trends are likely to continue in the final quarter and next year, said RBC analysts led by Piral Dadhania.

Eyeing its next big seller, Adidas has said previously it’s preparing more launches in its lifestyle running shoes and its superstar brand.

By Sonja Wind

Learn more:

Case Study | The Strategy That Brought Adidas Back From the Brink

Adidas has mounted one of the more remarkable turnarounds in recent memory after facing a crisis two years ago from the end of its Yeezy business. BoF spoke to chief executive Bjørn Gulden and other members of Adidas’ leadership to unpack how a series of bold decisions on products like its Samba sneaker, a move to refocus the brand on athletes and internal shifts brought Adidas back from the brink.

China’s growing consumer frugality has led to yet another quarter of sluggish earnings for some global brands, but turbocharged growth for their local rivals.

A day after L’Oréal SA posted disappointing quarterly sales that suggested China was a major drag on earnings, Hangzhou-based Proya Cosmetics Co. Thursday reported a 21 percent jump in sales and profit during the three months ended September.

The Chinese company’s performance shows that its relatively affordable products and online-focused marketing are working in a market where premium brands are experiencing a decline in sales. L’Oréal’s like-for-like sales in North Asia, which includes China, fell 6.5 percent during the quarter, with chief executive officer Nicolas Hieronimus attributing the poor showing to consumer pessimism.

The persistent slump isn’t limited to cosmetics makers. Luxury giant LVMH Moët Hennessy Louis Vuitton SE reported its worst quarter since the pandemic, whereas Starbucks Corp. has continued to lose market share to local rivals such as Luckin Coffee, and Cotti Coffee that offers a cup of Americano for as low as $1.4.

Even the usual favorites like Nike Inc. and Uniqlo are seeing sales stumble amid a broad consumer switch to cheaper alternatives, or “pingti” in Mandarin.

“Local brands are winning” the competition, said Ernan Cui, China consumer analyst at Gavekal Dragonomics. “Consumers have become more sensitive to prices and are in pursuit of better value for money products amid a weak economic growth.”

Chinese budget retailer Miniso Group Holding Ltd. is expected to report yet another quarter of double-digit growth, according to analyst estimates compiled by Bloomberg. At the same time, Luckin’s revenue growth in the third quarter is estimated by analysts to stay largely the same from the previous quarter’s level of over 30 percent.

Sales on China’s biggest e-commerce platforms under Alibaba Group Holding Ltd. are also stacking up against the global big brands. with L’Oréal, Estée Lauder Cos., Procter & Gamble Co.’s SK-II and Shiseido Co. seeing a 35 percent - 50 percent decline in the 12 months through September, according to data from Hangzhou Zhiyi Tech. On the other hand, Proya and other local labels such as Kans and Giant Biogene Holding Co.-owned Comfy reported more than 20 percent sales growth in the same period.

L’Oréal’s China market deterioration “shows challenging demand particularly in the off season and increasing competition from domestic brands,” Citigroup analysts including Tiffany Feng wrote in a note earlier this week. The company’s premium beauty segment suffered the most from cautious consumer spending.

A Citi note earlier showed there was no improvement in luxury goods consumption during the week-long Golden Week holiday early this month after the recent macro polity stimulus in China that contributed to a short-term rally in luxury stocks.

By Bloomberg News

Learn more:

Inside Luxury’s Slowdown

Economic headwinds, high prices and a lack of novel design are all weighing on what was previously fashion’s most dynamic segment. How severe is the slowdown and how long will it last?

Hobby Works President Michael Brey knows his customers are fed up with price increases, so he’s stocking up on less costly products he thinks people will actually go for. At his stores in Rockville and Laurel, Maryland, the pandemic-era days of passing on price hikes for items like train sets, remote-controlled cars and drones are over.

“We can’t raise our prices because consumers have kind of maxed out,” Brey said. “We are doubling down on these newer, smaller, entry-level items because they’re at a price point that we think will work for consumers in the current environment.”

Across the US, businesses like Brey’s are reporting a growing constraint on their ability to increase prices. Diminished pricing power should help slow inflation, which has already cooled substantially from the peaks registered two years ago. That could help give Federal Reserve officials comfort to continue cutting interest rates even when incoming inflation data, like the most recent report on consumer prices, is bumpy.

“That it is harder for businesses to pass on prices is an indication that the Fed’s tighter policy stance has been working in reducing inflation,” said Sarah House, senior economist at Wells Fargo. “This will be an important element for them to keep an eye on as they’re trying to finish that last mile of the inflation fight.”

After opting for an outsize half-point interest-rate cut to kick off their easing cycle in September, Fed officials received hotter-than-expected monthly inflation numbers. That and an acceleration in hiring in the latest monthly jobs report have led to some speculation that the US central bank could consider pausing rate cuts at coming meetings.

Policymakers have mostly downplayed such prospects, in part by citing what they’re hearing from business contacts about the outlook. Fed Governor Christopher Waller, speaking on Oct. 14 a few days after the latest report on consumer prices, called the numbers “disappointing.” But he added that reports from firms about waning pricing power are among the reasons he expects “increases will be modest going forward.”

Richmond Fed President Thomas Barkin and his San Francisco counterpart, Mary Daly, both made similar comments following the inflation report, citing anecdotes of increasingly cost-conscious consumers doing things like buying private-label products instead of branded ones.

“You see a lot more promotions. You see a lot more price reductions. You see a lot more channel-shifting, and that’s what’s bringing inflation down,” Barkin said at an Oct. 10 event. “That’s how it’s supposed to work, which is that high prices eventually fix high prices because people make other choices.”

As the economy reopened following the onset of the Covid-19 pandemic, businesses hiked prices as they faced strong consumer demand, widespread supply-chain disruptions and a generational opportunity to charge more. This year, however, the tide has turned.

Some $2.1 trillion in extra savings Americans accumulated between the pandemic’s onset and August 2021 were fully spent by March 2024, according to San Francisco Fed research. Meanwhile New York Fed data show a steady rise in the number of Americans behind on credit-card payments. And wage growth has cooled amid a slowdown in hiring, leaving shoppers choosier about what they buy and how much they pay for it.

In September, a net 25 percent of small businesses said they were planning to raise prices in the next three months, according to a National Federation of Independent Business survey. That puts the measure back in its pre-pandemic range after rising as high as 54 percent in late 2021.

Corporate earnings calls tell a similar story. Dirk Van de Put, chief executive officer of Oreo-maker Mondelez International, told analysts in September that while the company will raise some prices, it will do so “in steps so that we can see how the consumer reaction is” while “putting in place very close follow-up mechanisms.”

Narrowing profit margins also point to waning pricing power, according to Wells Fargo’s House. While economy-wide margins remain well above pre-pandemic levels, they’ve come down substantially in the retail and wholesale trade sectors after surging in 2021 and 2022.

At Hobby Works, Brey said customers in recent years were willing to take price increases “on the chin.” But now, they won’t pay more than what they perceive to be a reasonable price, causing sales declines in some of the stores’ departments. He’s managing that by stocking up on more affordable products, like a small remote-controlled car in the $150 to $200 range.

Some important indicators point to ongoing consumer resilience. Retail sales bested expectations in September, putting economic growth on track for its strongest quarter in a year, according to an Atlanta Fed model.

Fun Stuff

But persistent price increases for essentials like shelter, health care and insurance are limiting how much businesses can charge for discretionary categories, House said.

“We’re still looking at a pretty healthy consumer,” she said. “But right now, just given the inflation we’ve seen in those non-discretionary items, that’s leaving less money left over to go spend on the fun stuff.”

Results of a periodic Fed survey of regional business contacts published Wednesday showed businesses across the country are seeing rising price sensitivity among their customers.

In the Atlanta district, for example, “contacts reported a continued trend of declining discretionary spending and trading down to lower-priced goods and services,” the report said. “Though this was still mostly concentrated among lower-income groups, middle- to high-income consumers, while continuing to spend, became more selective with purchases and sought discounts.”

Ernest Lee, chief commercial officer at citizenM, a hotel chain with locations in several large US cities, said pricing power with leisure travellers has been challenged this year. He attributes that to consumers spending down cash they saved during the pandemic and the crunch high borrowing costs have put on household budgets. He said a decline in booking lead times this year is one sign of the emerging trend.

“The consumer feels that there will be enough inventory to purchase later or closer to their trip” and they can “still get within their budget,” Lee said.

By Amara Omeokwe