Luxury brands have been sounding the alarm about a global downturn in recent months. With second quarter results due out this week from three of the sector’s biggest names, we’re about to learn the extent of the damage.

Analysts expect LVMH to report 3 percent growth after market Monday, on par with the previous quarter but well below the high standard set in recent years. Meanwhile, Gucci-owner Kering is expected to report sales down 9 percent on Tuesday, Reuters reports.

The biggest and most intractable problem is China. Once responsible for the bulk of luxury brands’ growth, consumers in the world’s second-biggest economy seem to have abruptly reined back spending on glitzy items. Retail sales grew 2 percent in June, the slowest pace since December 2022, despite government efforts to boost consumer confidence. Reduced spending can partly be chalked up to a slowing economy – GDP growth also underwhelmed. But the downturn is being compounded by mounting government pressure on China’s wealthy not to flaunt their riches, recalling a slowdown in the mid-2010s linked to an anti-corruption push. The impact was already seen in Richemont’s quarterly report last week indicating sales of its pricey watches plummeted 27 percent in the country.

Elsewhere, growth is anaemic as consumer priorities shift. Success depends most on the overall health of the brand. Hot competitors such as LVMH’s Loewe or Prada’s Miu Miu continue to grow, while struggling labels like Burberry and Gucci reported steep sales drops in the US and Europe last quarter. Expect this dynamic to hold; while both Burberry and Kering have shaken up their executive ranks and strategies, neither company has changed course yet.

Hermès and a clutch of other ultra-high-end brands have yet to suffer from the slowdown. There are cracks forming even here, however. Investors were dismayed earlier this month when Brunello Cucinelli, amid otherwise strong results, failed to lift its outlook for the remainder of the year. That follows Chanel, which in May reported growing sales but warned of more volatile times ahead. Hermès’ earnings usually outperform in times of crisis, as its persistently sold-out Birkin and Kelly bags are the last expense many big spenders want to cut. If the company falls short of expectations, watch out.

In happier news, the Olympic Games open in Paris on Friday. Marketing teams at fashion brands high and low have been preparing for this moment for months, if not years. LVMH brands are expected to be omnipresent, particularly Louis Vuitton, which has found new ways to ensure its signifiers are seen by hundreds of millions of viewers at home (to cite one example, medals will be carried to the podium on LV-checkered trays). Luxury labels have recently embraced global sports as a way to burnish their status as “cultural brands.” For actual sportswear companies, the Olympics stakes are higher; Nike needs to show it still leads the way when it comes to elite performance, while smaller brands are looking to stamp their logos on their category’s biggest stage.

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

Saudi Arabia’s Public Investment Fund has made an offer that would boost its stake in Selfridges to 50 percent, according to documents seen by Bloomberg News, after the UK department store’s co-owner fell into insolvency.

PIF already owns a 10 percent share in the Selfridges properties and has offered to buy the remaining 40 percent stake for a cash price of £1 million ($1.3 million) from Signa’s flagship property unit, according to an insolvency report filed by the division of the troubled real estate and retail empire dated Jul. 15. The properties include sites in London’s Oxford Street and Manchester.

The Saudi wealth fund is undertaking due diligence with the help of advisers, according to the document. The other 50 percent of Selfridges is owned by the Thai retail conglomerate Central Group.

A representative for PIF declined to comment. A spokesperson for Signa Prime’s administrator also declined to comment on the report.

The potential deal comes as the sprawling group of companies founded by Rene Benko is slowly unwound after its key property units fell into insolvency processes at the end of 2023. The Austrian tycoon purchased the stake in Selfridges in 2022 in one of his most ambitious acquisitions, before syndicating a portion of the 50 percent share to the PIF.

PIF, which is a creditor to Signa, would reduce its claims against the group by as much as £52 million as part of the deal, according to the document. Bangkok Bank, which provided the senior loan for Selfridges’ Oxford Street site, would also waive certain claims against Signa Prime to the amount of about €733 million ($798 million), it said.

Signa also previously had joint ownership of Selfridges’ operating business, which has been now taken over by Central Group.

The department store chain, founded in 1908 by Wisconsin-born Harry Gordon Selfridge, is best-known for its Oxford Street flagship store which for decades was synonymous with high-end London retail.

By Libby Cherry with assistance from Matthew Martin and Sonja Wind.

Learn more:

Are Department Stores Still Relevant?

Selfridges’ sale for a lofty $5.4 billion suggests there is still life in the department store model. But how to grow in a shrinking category?

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Subscribe to the BoF Podcast here.

Background:

2024 has the potential to be a dynamic year for dealmaking in beauty, as brands including Makeup by Mario, Kosas, Merit and even Selena Gomez’s Rare Beauty begin exploring their strategic options. But strategic buyers and private equity firms are also adopting more selective acquisition strategies.

At The Business of Beauty Global Forum 2024, Vennette Ho, managing director and global head of beauty and personal care at investment bank Financo Raymond James shared her expert views on this year’s M&A scene in the beauty industry. Ho is the industry’s most respected investment banker, so when she talks, the beauty industry listens.

“M&A happens when there’s a fundamental change in the consumer. The consumer needs and the consumer wants are something that the strategics today don’t have,” Ho explained. “Every time there’s an evolution of a consumer need or want or expectation, M&A has to become a necessity for large strategies to look at.”

This week on The BoF Podcast, Imran Amed, BoF founder and editor-in-chief sits down with Ho to discuss the evolving nature and market of the beauty industry.

Key Insights:

• According to Ho, consumer expectations for beauty brands have changed, as well as how they engage with them. Acquiring indie brands helps conglomerates meet those expectations. “A lot of the big companies don’t have … the ability to incubate internally, they don’t have the ability to come up with something. It really comes honestly from the hearts of founders and it comes from private companies. As a result, M&A becomes really necessary,” she says.
• Ho advises founders to get to know lots of potential acquirers when considering a potential acquirer, in order to understand who shares your values before making a deal. “It also goes for the other side that they feel like they know you and you can have a better alignment from the beginning,” she adds.
• The perfect exit process is not just about the closing of the deal but also what happens after. “What happened six, 12 months, three years after the deal happened? Are people still feeling the same way? I think that’s where we get the most pride and say, ‘Okay, this actually impacted the industry in some huge way that went beyond just that moment of the deal,’” says Ho.
• Looking towards the future of the industry, Ho believes we’ll continue to see the breakdown of beauty category silos. “I think some of the most interesting and most disruptive companies don’t actually fit into that mould and don’t actually fit into a traditional thing,” she said. “The consumer doesn’t think, ‘Is this a prestige brand? Is this a mass brand? Is this a skincare brand?’ They’re thinking, ‘Is this a brand that I want to engage with that engages me in a certain way?’ There’s a really exciting democratisation of things where brands can exist in different channels at the same time.”

Additional Resources:

• Why L’Oréal Is Investing in Niche Chinese Fragrance Brands: The French beauty giant’s two latest deals are part of a wider M&A push by global players to capture a larger slice of the China market, targeting buzzy high-end brands that offer products with distinctive Chinese elements.
• The Changing Shape of Beauty M&A: Beauty megadeals may be few and far between over the near term, but M&A will still be critical for buyers and sellers seeking growth, innovation and competitive product portfolios, reports The State of Fashion: Beauty.
• Beauty’s Top M&A Targets: A flurry of deals just weeks into the new year are a sign of things to come. The Business of Beauty identifies the top targets of the year.

Supreme’s 30th year in business will be defined by a landmark sale to an unexpected buyer.

The New York-based streetwear juggernaut, founded in 1994, was resold by the US apparel group VF Corp. to French-Italian eyewear conglomerate EssilorLuxottica this week for $1.5 billion in cash, a significant markdown from the $2.1 billion VF paid for it in 2020.

The deal gives VF Corp. access to quick cash as it seeks to shore up its balance sheet amid falling sales at its much bigger brands — such as Vans, where sales plunged 26 percent in its most recent fiscal year — and mounting debt. EssilorLuxottica gets to expand from eyewear into new categories and the opportunity to lean into Supreme-branded eyewear that it can sell through its huge distribution network.

Supreme, meanwhile, was on the rebound after a shaky start under the VF umbrella. Its annual revenue grew from $523.1 million to $538 million in its most recent fiscal year, despite the tumultuous exit of creative director Tremaine Emory — fuelled by allegations of “systematic racism” internally at the brand in August 2023. The brand expanded its retail presence greatly under VF. It opened stores in Western capitals like Chicago, Berlin, and Milan while expanding into Korea and China through new flagships in Seoul and Shanghai.

The question is where Supreme goes from here. Like Ralph Lauren, it rose to the top with contemporary Americana, albeit a version that wasn’t fully mainstream. But today, the youth subcultures Supreme stood for no longer feel so niche. Hip-hop is massively commercialised, skateboarding and breakdancing are in the Olympics and even rebellious subcultures like graffiti have been transformed into industries ironically intertwined with corporate advertising.

Supreme itself — no longer a cult skate label but a globally recognised brand — may have outgrown the model of drops and scarcity it was founded on; it could even be constraining the brand as it aims for a new phase of growth.

Maybe it’s time for Supreme to sell out and go mass-market.

What that actually looks like could take different forms. One option would be to go the route of a mainstay like Tommy Hilfiger by widening distribution and expanding into wholesale retailers. It was a move made by one of Supreme’s original contemporaries, the New York skate label Zoo York, after it was acquired by hip-hop entrepreneur Marc Ecko in 2001.

Zoo York was much smaller than Supreme today, but it was a watershed moment for a skate brand to be sold in department stores like Bloomingdale’s and Dilliard’s. When Zoo York’s founder, Eli Morgan Gesner, reflected on taking Zoo York to the mass-market, he said it was because Supreme’s model of slow growth wasn’t proven at the time, while Polo and Tommy Hilfiger’s wholesale approach was.

Yet the eventual decline of Zoo York also serves as a cautionary tale for Supreme. Zoo York grew, but it lost its edge under an owner that prioritised sales over the brand’s identity. Supreme would need to try to do the former without compromising the latter.

There are models for that strategy, too, including from EssilorLuxottica’s own playbook and from the luxury world.

When EssilorLuxottica purchased Ray-Ban from Bausch & Lomb in 1999, Ray-Ban was a heritage American sunglass manufacturer widely recognised within pop culture but struggling to compete against emerging newcomers in the category, such as Oakley. Supreme’s situation today isn’t too different. It defined mainstream streetwear in the 2000s and 2010s but is now challenged by upstarts like Corteiz and preppy young menswear labels like Aime Leon Dore. Much as EssilorLuxottica grew Ray-Ban by repositioning it as a widely available but upscale eyewear brand, it could raise the price of Supreme’s wares while only working with stockists that will merchandise it properly and never sell it below retail.

This magic act of maintaining a sense of exclusivity while selling products by the millions is one the luxury industry has perfected. Companies such as Chanel use their ultra-expensive runway pieces and couture to preserve their elevated image while selling branded fragrances and makeup in every airport around the world. Like Chanel frames, Supreme eyewear could be sold throughout the thousands of stores EssilorLuxottica owns. Yet its core direct-to-consumer clothing business could be tightly controlled. (Many Supreme enthusiasts today suspect that VF Corp. upped the stock of its most coveted pieces, the seasonal box logo T-shirts and hoodies, due to slower sell-out times.)

It could implement higher pricing on its higher-end apparel and limit volumes for its most coveted collaborations through invitation-only drops. Meanwhile, the same way Chanel and Dior sell $50 makeup, Supreme is well-positioned to sell a constant supply of entry-level items such as Nike Air Force 1s and Hanes basics emblazoned with a box logo.

Whether Supreme would be open to these approaches is another matter. Founder James Jebbia seems careful not to make the same mistakes as Supreme’s contemporaries. When Stüssy considered a mass-market route through wholesale, it ultimately pulled back in the mid-2010s to establish its cool factor again. Supreme’s distribution is even tighter than Stüssy’s. Outside the secondhand resale market, Supreme still only sells its merchandise at its flagships, its online store and in-store at select Dover Street Market locations.

Even under corporate ownership, Supreme was able to scale on its own terms, given the freedom to scout skate spots before opening new stores and hire the right local scenesters to run them. After Supreme sold to EssilorLuxottica, Jebbia suggested its approach wouldn’t change, saying in a statement, “In EssilorLuxottica, we have a unique partner that understands that we are at our best when we stay true to the brand and continue to operate and grow as we have for the past 30 years.”

But corporate owners can also become impatient, or find themselves in need of cash when times get tough. Supreme will have to prove it can keep growing with the same business model. If it doesn’t, something may have to change.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Richemont jewellery sales solid, offsetting drop in China demand. The Cartier owner reported a sales gain of 1 percent at constant currencies to €5.3 billion ($5.8 billion) in its latest quarterly earnings. Jewellery sales, which account for the bulk of its revenue and profit and also include the Van Cleef & Arpels and Buccellati brands, rose 4 percent.

Adidas improves full-year guidance as post-Yeezy recovery continues. Revenue by 11 percent year-over-year in its quarter ending May 2024. Operating profit nearly doubled from the year before. The brand also expects to sell off the remainder of its Yeezy inventory by the end of the year, which is expected to generate an additional €150 million in sales.

Macy’s ends buyout talks with activist investors. The American retailer has effectively closed the door on the take-private offer from real estate firms Arkhouse Management and Brigade Capital. The company’s stock plunged on the news.

Armani and Dior face Italian antitrust probe on labour practices. Financial police and antitrust officials searched the headquarters of Giorgio Armani and Christian Dior Italia, alleging that the two brands may have used supplies from laboratories which employed workers receiving “inadequate” wages.

Swatch shares plunge as profit falls 70 percent on weakness in China. The results underscore the downturn in demand for luxury goods in China as consumers in that key market shun purchases of pricey items. The company also recorded a 14 percent drop in sales for the first six months of the year.

Hugo Boss Plunges after slashing outlook on China and UK demand. The German fashion brand now expects operating profit of around €350 million ($381 million) to €430 million in 2024, down from a previous range of €430 million to €475 million. The shares slid as much as 11 percent on Tuesday.

Adidas and Thom Browne fight in UK court over striped trademarks. The New York designer argues that Adidas is effectively trying to establish a monopoly on the use of stripes on clothes. The two companies have previously faced off in the US, where a jury rejected Adidas’ trademark lawsuit last year, a decision upheld on appeal in May.

US retail sales excluding autos rise by most in three months. Retail purchases rose 0.4 percent last month after an upwardly-revised 0.1 percent advance in May. The data buck a trend in recent months showing a gradual slowdown in consumption growth as Americans feel the pinch of high interest rates and a cooling labour market.

Arsenal partners with Labrum London on its upcoming season’s away kit. Sierra-Leonian-born Foday Dumbuya, who founded the London-based menswear brand in 2014, is the first-ever independent designer to create an on-field kit for a Premier League team.

THE BUSINESS OF BEAUTY

Laneige partners with WNBA team Phoenix Mercury. The brand is set to kick off the partnership at the WNBA All-Star Weekend in Phoenix, Arizona with activations and VIP gifting. The partnership comes at a time when there has been more eyeballs than ever before on women’s hoops and will help Laneige grow sales in the Phoenix region.

Douglas raises sales forecast and divests pharmacy business. The company is predicting growth of 8.5 percent this fiscal year, up 1.5 percent from its previous outlook. The firm, which raised €890 million ($967 million) when it went public in March, also announced telehealth company MYA Health B.V will buy its online pharmacy business, Disapo.

J&J profit and drug sales beat expectations. The company said it would generate operational sales of $89.4 billion in 2024, an increase of 6.4 percent from a year earlier, after its $13.1 billion buyout of the device firm Shockwave Medical.

Rabanne launches a fine fragrance collection. La Collection Rabanne, an eight-piece range of fine fragrances, will hit the market on July 18. The scents will be sold at London’s Selfridges department store, as well as on Rabanne’s e-commerce site.

Sisley to open first London spa. The new Maison Sisley will offer treatments for face, body and hair. Treatments will exclusively use Sisley products, but will also emphasise professional techniques such as facial massage, LED and peels.

PEOPLE

Burberry replaces CEO as high-end push falters. Jonathan Akeroyd is departing after less than two-and-a-half years at the British company, and will be replaced by Joshua Schulman, a former CEO of Michael Kors and Coach. The share price fell more than 10 percent in early London trading.

LVMH names new CEOs for Hublot and TAG Heuer watch brands. Julien Tornare, TAG Heuer’s current chief, has been named CEO of Hublot, the brand known for edgy designs and partnerships with athletes and artists. Antoine Pin, currently general manager of Bulgari Horlogerie, will succeed Tornare as CEO of TAG Heuer.

Ewa Abrams tapped as Kering Americas’ president. Abrams succeeds Laurent Claquin, the French executive who was named chief brand officer at the group level last month. Abrams worked at Tiffany & Co. for 17 years before joining Kering Americas as general counsel in 2018.

Lewis Hamilton named Dior ambassador. The seven-time Formula 1 champion and fashion trendsetter has also worked with Dior men’s artistic director Kim Jones to guest design a collection of clothing and accessories set to launch in October. The new partnership with Hamilton comes as Dior owner LVMH is ramping up marketing linked to Formula 1.

Elis Kiss named Vogue Greece editor-in-chief. Kiss first joined the publication when it relaunched in 2019 as fashion features director. She is succeeding top editor Thaleia Karafyllidou.

MEDIA AND TECHNOLOGY

Meta explores stake in Ray-Ban maker Essilorluxottica. The tech giant is considering a multibillion-euro investment in the eyewear group, according to a Financial Times report. Shares of EssilorLuxottica jumped 6 percent on the report, while Meta stock was up 1 percent in premarket trading.

The Cut will publish a fall print edition. This September, the Vox Media-owned publication, a vertical of New York magazine, will publish its viral essays, fashion coverage and pop culture hot takes in its first standalone issue. Should the edition be well-received, parent company Vox Media plans to continue print versions of The Cut twice a year, timed to fashion week.

Compiled by Yola Mzizi.