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.